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Seed Weekly - The Case for Offshore Wrappers

A couple of years ago I wrote an article explaining the benefits of using an endowment when structuring local investments.

In this article I want to look at the benefits of using a “wrapper” when structuring your offshore investments. Whilst the following list is not exhaustive, these are the main reasons why one should use a wrapper when investing offshore:

Succession planning

• Most wrappers are usually held in the name of both spouses so when one spouse passes away the other spouse automatically becomes the sole owner of the investment.
• Most companies also make provision for secondary beneficiaries or alternative beneficiaries which come in to play at the passing of the surviving spouse. Depending on the company these beneficiaries can then continue with the investment (they will however have to pay Estate Duty).
• Because of the structure of the wrapper, there are no probate issues involving expensive lawyers, reams of paper work and huge amounts of time.
• Because the transfer of ownership happens outside of the Estate, no executors fees are payable on the investment.

Tax savings

• High nett worth SA individuals pay 45% income tax and presently pay 18% Capital Gains tax. When using the wrapper income tax of 30% and CGT of 12% is payable within the policy.
• The use of roll up funds negates the income tax implications of offshore investments.

The graph below illustrates the effect of the points above :

Ease of administration

• When dealing with a wrapper no matter how many underlying products you have you only deal with one statement.
• All income tax implications are dealt with by the wrapper, as the owner of a wrapper your only duty is to disclose the value of the wrapper in your statement of assets and liabilities.

Situs

• With the Situs legislation, US and UK assets over certain thresholds are deemed to be Estate dutiable in the US/UK. Estate duty in the US and UK is 40% and not the 20% that we pay in South Africa. The domicilium of the wrapper means that US and UK registered unit trusts and shares do not fall within the grasp of the Situs legislation

So whilst it is slightly more expensive to use a wrapper rather than a direct investment, I feel that the benefits far outweigh the small additional costs of the structure.

Kind regard,

Barry Hugo

Tel +27 21 914 4966
Fax +27 21 914 4912
Email info@seedinvestments.co.za

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Fri, 20 Oct 2017- 10:10



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