Utilise your discretionary allowance now for safe, solid offshore returns

November 14, 2018

As December looms, the time to utilise your annual offshore discretionary allowance is running out and smart South Africans should be taking advantage.  You can effectively take R1 million offshore without the hassle of going through tax clearance, and if invested smartly in property, can make hard currency returns for years to come.

 

 

 
Why?

With an extremely volatile currency, political uncertainty and a bleak economic outlook, South Africa’s woes are no longer news.  The upcoming elections are not looking positive, and further downgrading by the credit ratings agencies seem inevitable next year.  The country will sink further into junk status and potentially be forced to pay back billions of Rands.  With little investor confidence, this situation will probably lead to an IMF bailout in 2019, meaning that SA’s expected growth is nowhere near that of other emerging markets.

Consequently, It is likely that the Rand as as an emerging currency will continue to come under increasing pressure making overseas investments more attractive over time, and interest rates will spiral. South Africans will need to make sure that both their Rand-holding and Rand-denominated debt is as low as possible in order to protect their wealth.  An offshore investment strategy is essential, and right now, can be capitalised on with clever use of your discretionary allowance.


Investing your discretionary allowance in property offshore has a double benefit.  Investments overseas means you can benefit from global GDP,  and earn an income in hard currency. Property is an asset class that has outperformed all others.  This combined with a favourable exchange rate, the right set of circumstances and a smart use of discretionary allowance, creates a very unique window of opportunity for many South Africans, who are looking to secure their wealth.


Where?

At present, many South Africans hold listed products offshore, keeping up to 60% of their wealth there.  Diversification is a key wealth strategy in offshore investing, and so tangible property assets in well chosen markets can be the perfect complement to your portfolio.  It makes sense to place money in strong currency where stability, security and strong returns are possible, to hedge against the lack of this here in South Africa.

Investing your allowance in property not only allows you to benefit from global capital growth, but also offers on-going income throughout holding period via rental yields, outperforming many dividend of alternative forms of investments

But isn’t investing in offshore property expensive? The main problem is that there are very few markets where you can purchase property within your discretionary allowance.  The UK, for example, would surely be out of reach?

In fact,  the Pound is currently devalued but is likely to strengthen in the future as Brexit and Trade negotiations become clearer.  At this time, properties are effectively 25% cheaper than they were 2 years ago, and it is currently possible to invest your discretionary allowance and acquire a full title deed property offering safe stable and secure returns. With a worldwide reputation for reliability and profitability, Britain’s property market continually draws international investors, and returns in GBP, a currency long established as a rand hedge.  Those worrying about Brexit should know that the government has pledged to build 200,000 units a year to match the current under supply.  This short supply, projected urbanisation and technological innovation is more likely to positively impact market growth than any policy or economic concerns.

How?

If you act quickly,  you can send R1 million offshore without having to get a Foreign Tax Clearance Certificate. This amount is called your ‘discretionary allowance’. Be even smarter and use your 2018 allowance before 31 December 2018 and then you use your 2019 allowance in January 2019. This allows you to move a wedge of wealth offshore without having to go through the red tape of securing a Tax Clearance Certificate. If you are married, or have shared investments, you can make further use of discretionary allowance, multiplying the total amount to R4 million.

For as little as R1.4million, you can buy a full title property in the UK, offering guaranteed returns of 8% net for 5 years.  This completely hands-off purchase is fully furnished, managed and in fact, you will receive half your investment back after 5 years.  This is just one idea.  For more information, view www.hurstandwills.com and contact hello@hurstandwills.com or call 087 012 5281 for a complimentary consultation.

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