Reason 1 – Tax effective for high tax payers
Following last weeks topic on why you should not have an endowment it stands to reason that you will benefit from investing in an endowment if your tax rate is higher than 30%. The latest budget proposals have raised the top marginal tax rate to 41% which presents a benefit for taxpayers in this bracket benefiting even more when compared to a unit trust investment.
_What _needs to be considered are the exemptions on the interest (R23 800) and capital gains tax (R30 000). If these will be taken up by other discretionary investments over the period of the endowment then the combined investment will be that more tax effective.
Reason 2 – Offshore Investments
The taxation applied to offshore investments is tricky and complicated. By wrapping your investment in an endowment policy you avoid the headache as the administrators are obliged to pay over the applicable taxes various taxes to SARS on your behalf.
Reason 3 – Payable outside the estate
The endowment is a policy contract which allows for a nominated beneficiary. This enables the investment to be paid outside the estate in the event of the death of the owner. This is pretty useful in terms of providing much needed access to funds whilst the estate is being wound up. Furthermore, additional owners can be added to an endowment allowing the survivors to continue with it for as long as they wish instead of having to cash it in in the event of death.
It horses for courses when choosing an endowment. The main advantage is the tax benefits which tend to benefit the higher taxpayers.
Read more from Paul Roelofse at www.investforlife.co.za