Maximising the benefit of tax-free investing

The end of the tax year is fast approaching, and it’s your last window of opportunity to maximise the benefits available through your annual tax-free allowance. It’s important to note that unused portions of your annual R36,000 tax-free allowance fall away and cannot be carried over into future tax years. Don’t let the opportunity pass you by, as the benefits of tax-free investing can be considerable over time.  

Saving on tax adds up over time
The most obvious benefit of tax-free investing is that your investment returns are exempt from local income tax, dividends tax and capital gains tax. To get an idea of just how much you save on taxes, and the impact of compound growth on your total investment value, we’ve shared an example below.

*Graph based on: M&G Balanced Fund; tax bracket: R488,701 - R641,400; 35-year term; monthly debit order of R3,000.

When comparing a taxable investment with a tax-free investment invested similarly over time, you can see that the tax savings was over R2.6 million, which also bolstered the total investment value. If you’re keen to get an idea of the tax savings, compound growth and benefit based on your information, try our Tax-free Calculator.

Choose top-performing tax-free fund options
When investing tax-free, it’s important to select funds that are appropriate and suitable to help you extract the most benefit from your allowance year after year until you reach your lifetime limit, while achieving long-term consistent tax-free growth.

Our range of 10 tax-free unit trusts* (six local and four offshore) are positioned to deliver consistently over time. Several of these have delivered top-quartile performance for our clients over various periods.

M&G SA unit trusts: Top-quartile performance**

**Source: Morningstar (A-class fund returns (after fees) on which tax-free T-class unit trusts are based); periods to 31 December 2022, ranked in respective ASISA category.

Opportunities for offshore diversification
One of the benefits of tax-free investing is that it can add an extra layer of diversification to your holistic portfolio, such as added offshore exposure.

Add to your portfolio diversification by investing offshore (in rand) through our bespoke offshore funds:

• M&G Global Equity Feeder Fund
• M&G Global Property Feeder Fund
• M&G Global Balanced Feeder Fund
• M&G Global Inflation Plus Feeder Fund 

These offshore funds are managed by our expert investment team in London, who hold a long and successful track record of investing around the world using the latest technology. This includes an advanced and proprietary machine-learning model incorporating artificial intelligence that aids in analysing the thousands of global equities in the investment universe to select the underlying stocks, with the ultimate input of our portfolio managers in building the optimal portfolios. This technology is used for the M&G Global Equity Fund and the M&G Global Property Fund.  

Adding tax-free to your portfolio
Due to the annual limit of R36,000 and the lifetime limit of R500,000, you could use tax-free investments in combination with other vehicles and allowances, as part of a holistic, long-term investment plan. These tax savings coupled with an optimal investment strategy could have a significantly positive impact on your long-term returns.

Don’t forget that the deadline for topping up your tax-free investment for the current tax year is 28 February. To invest in the M&G tax-free unit trusts, complete an online application form now. For more information, contact our Client Services team on 0860 105 775 or info@mandg.co.za

*Assumptions:

Equilibrium fund returns (net of a historical average fee adjustment) have been used for the purpose of this calculation.

Tax is calculated using the 2022/2023 SARS tax year table.

Figures assume that you have used your annual CGT exclusion and annual interest exemption.

Effective CGT rate of 18% applied, based on 45% maximum tax bracket.

The values used in our tools are determined using projections based on current assumptions about uncertain future outcomes. These assumptions were determined considering the historic relationship between varying factors.