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Ok. Got itInternational investment exposure is non-negotiable from a portfolio diversification point of view. However, according to Mike Wilmot, Head of Investments at Nedbank Private Wealth, ‘International investment objectives based on unreasonable tax outcomes, opaque asset ownership, or speculative short-term currency views have no place in any sensible process. It is therefore crucial to consider the impact any international investments may have on your will, your tax and estate liabilities, tax administration, and compliance with exchange control and other legislation’.
There are various ways to get international exposure
These include:
How to own assets internationally – what should you consider?
International asset ownership can be structured in your own name or jointly (in certain circumstances), in entities such as companies and trusts, within insurance wrappers such as endowments, and within South African retirement vehicles such as retirement and living annuities. Wilmot points out that with this decision, ‘You need to compare each option and combination of options and assess this against what is most suitable for your needs, and the costs and benefits of your choices’. Some of the factors to compare include:
What about tax?
South Africans must declare their global income and capital gains for tax purposes. South African residents are taxed on a residence-based system of taxation when investing internationally. This means that no matter where your assets are situated or how they were acquired, you will be taxed on, and obliged to declare, your global income (including any capital gains).
In addition, South African residents are, with relatively few exceptions, liable for South African estate duty on their international assets, including assets acquired using the investment allowance facilities. Many South Africans are not aware of this fact, or the impact it can have. Estate duty rates in South Africa are currently at 20%. Wilmot explains the impact of any rand deprecation on your estate duty liability in South Africa: ‘The rand value of international investments for estate duty purposes will increase when the rand depreciates and decrease when it appreciates. Given South Africa’s higher inflation rate and other factors, the risk is towards rand depreciation over time. This increases your potential estate duty liability due to currency translation gains on international investments.’
Do you need an international will?
‘While many people choose to have a single worldwide will, this is not always the best option’, comments Wilmot. ‘There are several complexities to consider, such as the nature of the assets you hold and the type of jurisdiction.’ There are different ways to deal with international assets in a will including:
The nature of your assets and the jurisdiction will determine which will is most suitable. ‘The first choice for many people is to have a worldwide will. However, this is not always practical’, says Wilmot. The nature of your international assets and the jurisdiction in which they are situated will determine whether you require a separate will, with each of the following requiring different considerations:
Globally integrated advice and planning is essential
Fiduciary specialists are experts in their field and their job is to help investors make informed, considered decisions about their global wealth. ‘It is important to consider every individual’s unique needs, family situation, objectives and preferences, which is why globally integrated planning is essential’, Wilmot explains.