Tax smart investing in turbulent times

Amid unsure times, being tax smart and investing optimally can go a long way to improving one’s long term financial outlook. In this article, we look at findings and insights derived from an interview with Senior Legal Advisor at Nedgroup Investments, Denver Keswell. Keswell shares useful tips to make the most of tax-saving opportunities when it comes to investing.

  1. All investments incur taxes – but you can make this work for you

There are always certain taxes involved when it comes to investments. Though, different investments are taxed in different ways, thus, by choosing the best investment structure for your circumstance, there are opportunities to lower the taxes paid when investing. The differences in the taxation of three investment options are displayed below:

  Retirement Funds Tax-free investments Endowments
Investment Invest before income tax Invest after tax money Invest after tax money
Tax on Growth and interest No tax No tax Tax at preferential rates for individuals with high personal tax rates
Payment of tax on access of funds Tax payable on withdrawal (with certain benefits) No tax payable on withdrawal No tax for investor


  1. Invest in tax- free investments

Keswell advises that tax-free investments are one of the most powerful saving tools that are available to savers, especially those invested in for the long-term. Keswell explains further that currently, South Africans can invest up to R3 000 per month and R36 000 per annum (up to a lifetime of R500 000). Furthermore, it is important to note that the lifetime limit is not adjusted for withdrawals and remains as R500 000. Thus, making this a perfect investment for longer-term investments, as the full benefit of returns on the investment, as well as the effects of tax-saving can be realized.

  1. Finally, do not forget about fees

We can get so focused on tax that sometimes we forget to consider the fees of an investment. It is daunting to decide which fund is going to generate the highest return – and often impossible. But it is possible to accurately assess what you will be paying for the investment. “Fees can have a significant effect on investment outcome and it’s important to remember that an investment is only working for you if the fees are not eroding all the tax-efficiencies you gain. Make sure you know what fees you are paying and that all the fees are disclosed before you invest in anything,” explains Keswell.

Our financial experts have been unpacking and providing practical advice on the best ways to preserve your financial freedom. Contact our financial advisors to ensure that you are receiving shariah compliant finance advise.

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(Source: FA News, 2020)


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