Do you hold cash in an offshore bank account and is it the right thing to do?

I have read an interesting article written by Marc Lindley from Ninety One which I have summarized.

Due to high inflation globally, we have seen aggressive hikes in interest rates worldwide the last 12 months.  Add to it the volatility experienced across a broad range of offshore assets classes in 2022, many investors have opted to remain in cash in the bank. Clients seem to be reluctant to enter the market.

Maybe you would be interested in an alternative low/no risk investment with the following advantages:

  1. You can keep your money in a money market / low risk fund.
  2. Tax efficiency:  If you are a high-rate taxpayer, you can reduce your tax from 45% interest to 12% CGT (capital gains tax).
  3. You can defer the tax payable which means that you are in control.
  4. You can add a beneficiary and save thousands on executor’s fees.
  5. You can nominate an alternative beneficiary in the unlikely event of you and your first nominated beneficiary pass away at the same time.
  6. There will be no need to nominate a foreign agent to deal with this asset.
  7. There will be no offshore inheritance tax.
  8. Your beneficiaries will have liquidity in the event of your death.
  9. The proceeds are exempt from CGT.
  10. Access to the money will be unrestricted after your death to your beneficiaries.

Disadvantages of an offshore bank account at death:

  1. Investor’s estate could face double taxation.
  2. You will pay executor’s fees in South Africa which could be equal to 3.99% + vat.
  3. The process will be drawn out and costly as you will likely have to appoint a foreign agent to handle the bank account.
  4. The location of your bank account will determine whether offshore probate applies.
  5. Depending on the location of the bank account, offshore inheritance tax (situs)can also be applicable.
  6. The offshore bank account will be frozen while the estate is being finalised.  That could take months and sometimes years to finalise.

In my opinion it is a no-brainer to consider the alternative investment vehicle offered to our clients. There is no downside to consider.

Should you be interested to have a conversation about this option, please contact me or your financial advisor.

Yvonne Velthuysen

Photo by Kenny Eliason on Unsplash

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