An international endowment option is affordable, tax-friendly, easily inheritable and liquid.

Investing directly offshore has gained popularity in the past decade, as investors started looking for the superior returns offered by international markets against the backdrop of a struggling local economy. Many tried to invest directly offshore and had a bad experience doing so thanks to either fees, taxes or estate problems lingering in the back of their minds.

Globalisation has changed many things in our world, including the way we invest. Offshore investing has also become much more accessible than in the past. Nowadays an offshore account can be opened in one or two days which allows for investing in anything money can buy. BUT this may come at a much bigger price than what one might have bargained for.

When investing directly offshore it is important to not only know South Africa’s regulations regarding taxes and estate duty, but also the regulations and taxes of the country you are holding your share/portfolio/investment in.

Red flags to note when investing offshore:

1. Situs tax

  • In the UK this is known as inheritance tax, in the US it is called estate tax. Collectively, it is known as “situs tax.”
  • If you own assets upon death in the UK of an amount over £325 000, 40% situs tax will be levied on situs assets over the value £325 000.
  • In the US situs is triggered at a dangerously low threshold of only $60 000.
  • These are payable even before SA estate duty comes into play.

2. Grant of Probate

  • This can simply be described as a type of offshore executor of your offshore assets that you would need to appoint to specifically manage all your assets outside of SA. Effectively accruing more fees upon death.

An experienced, qualified financial advisor can guide investors through this process. They continuously research ways to invest individuals’ money the best way possible, taking into consideration the present and future risks and regulatory hurdles an investor would face.

One structure that is not only affordable, tax-friendly, easily inheritable and liquid, and widely regarded as the holy grail for investment structures offshore is an international endowment option. It offers significant benefits regarding all the challenges mentioned:

  • Investments and withdrawals can be made in USD/EUR/GBP/ZAR.
  • There is no VAT (currently at 15% in SA) on investment management or administration fees as the structure is set up in Guernsey.
  • At Brenthurst Wealth we invest in global roll-up funds, which means all dividends and interest earned gets rolled up into the unit price rather than paid out, thus a yearly tax on dividends and interest reduces to 0%.
  • Capital gains tax is only applicable to withdrawal for a top tax bracket individual, which effectively reduces from 18% to 12%.
  • ZERO capital gains tax payable on death when inherited by spouse or children as the assets are not sold. This enables the investment to build more cumulative returns over time, effectively creating more wealth.
  • Capital gains are calculated in USD terms and do not include gains from the weakening of the ZAR.

Drawbacks of this structure:

  • Within the first five years, the investor can make only one loan and/or one withdrawal against the investment. This can be a partial or full loan/withdrawal against the invested amount. (After five years it becomes an open structure and additions, and withdrawals are unlimited).
  • A withdrawal may take up to 15-20 working days.
  • This investment can only be made in the personal name of the investor, or offshore company and offshore trust.
  • For investments made with SA companies and SA trust capital, there are different beneficial structures to help invest with offshore exposure and benefits.
  • The minimum investment amount is $18 000.

Utilising the correct structure to invest offshore will not only pave the road to wealth generation for you and generations after you, but it will save your loved ones a lot of headaches and costs when you pass away and hand over the legacy built.

As with all investment options, it can best be navigated with the guidance of a professional, qualified, financial advisor.

“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett