Selling due to emigration was recorded as 7% of total home sales during the second quarter of 2021, according to the FNB Property Barometer.
This figure has come down slightly from 12% during Q4 2020. During this period, owners selling their properties (valued over R3.6m) in order to emigrate accounted for 24% of all sellers.
However, research shows that there’s been a significant increase in emigration in the past five years, especially among high-net-worth and ultra-high-net-worth South Africans.
According to Ralph Wichtmann, consultant at Sovereign Trust (SA) Limited, political instability, safety and security, education, volatile currency or the lack of job opportunities in South Africa are some of the reasons why South Africans are increasingly looking to emigrate.
“Our enquiries show a significant increase in South Africans looking at residency and citizenship investment options. Wealthy individuals don’t necessarily want to completely cut ties with South Africa, but to have a second option or a plan B,” says Wichtmann.
He explains that individuals are usually in their mid-40s and older; many are business owners, retirees or about to retire. These individuals are looking at relocating, as they already have offshore business dealings; many retirees are simply looking for places that are safer than South Africa.
Furthermore, Wichtmann says these countries are attractive for many reasons. They offer safer living environments for families and retirees, free or affordable education and/or medical care, more chance of career progression and greater ease of doing business. Children often have a chance of acquiring passports or citizenship in the countries of their ancestry, and as a result, improved future opportunities.
“Tax has also been a prime factor, particularly since the 2017 amendment to the Income Tax Act – the so-called ‘expat tax”, says Wichtmann.
As of March 2020, South African residents who are ‘employed’ outside South Africa, and are out of the country for periods exceeding 183 days, 60 days of which must be consecutive, in any 12-month period, must now pay South African tax of up to 45% of their foreign employment income, when it exceeds the threshold of R1.25m.
“This [threshold] might seem generous, but employment income includes allowances and fringe benefits paid to expatriates that cannot be considered as earnings,” points out Wichtmann.
According to the Knight Frank Wealth Report 2021, 24% of ultra-high-net-worth individuals plan to apply for a second passport or citizenship in 2021.
Wichtmann says many South Africans are eyeing three top emigration destinations.
Emigration to Australia is sought after because of the country’s high quality of life, prosperous economy, diverse population, excellent healthcare and education systems.
By the end of June 2018, 189,230 South African-born people were living in Australia, 36.9% more than the number on 30 June 2008. This makes the South African-born population the seventh largest migrant community in Australia.
Australia offers a number of visas, among these, the permanent Migration Programme, which incorporates economic and family migration and is the main pathway to permanent residence. It includes the Skill stream, Family stream and Special Eligibility visas.
2. The UK
According to Wichtmann, the UK remains the preferred destination for South Africans looking for excellent employment opportunities, a high standard of education and a good quality of life.
“However, choosing the right visa can make the process of applying much simpler and can lead to a more successful application,” he points out.
Under the UK’s new post-Brexit immigration system, the Tier 2 (general) visa category has been replaced by the Skilled Worker Visa route. This visa allows you to live and work in the UK for up to five years, at which time you can apply for Indefinite Leave to Remain.
Portugal is a leading country for individuals and families seeking residence in the European Union and has become a popular destination for South Africans.
Wichtmann says the country provides a stable political and social environment, clear and transparent tax rules, good infrastructure, a favourable climate and an excellent quality of life.
The Portugal Golden Visa Residence Permit (GVRP) is a residency-by-investment programme that provides qualifying individuals and their family with full rights to live, work and study in Portugal. Additionally, individuals have access to visa-free travel within the Schengen area.
For this visa, applicants can choose from several investment options, which include the purchase of real estate, with minimum investments starting from €250,000.
Emigration and tax implications
According to Wichtmann, most South African taxpayers working abroad are already paying some form of local income tax. This should be deductible against South African income tax payable, providing that a double tax agreement is in force between South Africa and the country in question.
However, the ‘expat tax’ has led many South Africans who had already left the country but not formally, to seek to formalise their emigrant status.
Wichtmann explains that South Africa applies a two-test system to determine tax residency: the ordinarily resident test and the physical presence test.
For example, if the individual is going to emigrate and sells all their South African assets and/or moves everything across to the new destination, as well as registers for income tax in the new country, then they will likely cease to be a South African tax resident under the ordinarily resident test.
They still need to inform the South African Revenue Services of their tax residency and the South African Reserve Bank for residency exchange control.
“It’s important to note that each person’s individual circumstances are different and some might want to keep a property in South Africa, which they rent out. They will still pay South African income tax on the rental income received from this property,” states Wichtmann.
He says this is where the Double taxations avoidance agreement (DTAA) comes into play between SA and the new country, which might also tax its residents on their worldwide income.
“It’s likely that a tax credit will be afforded to the individual by the revenue service in their new home country against the taxes paid in South Africa on the rental income,” says Wichtmann.
Important to know, is that DTAAs determine which country has the taxing rights on which source of income and remedies are available. This is to ensure that an individual is not taxed twice on the same source of income by both countries.
Wichtmann notes that an exit tax will be applicable upon becoming tax non-resident in SA. There is a deemed sale of all the individual’s global assets at market value. Calculation is based on the value of these assets a day before one becomes tax non-resident – this is basically a capital gains tax.
Furthermore, Wichtmann says emigration tax structures should not be confused with buying property in any of these countries.
“Tax structures differ significantly and depend on the personal tax residency when the structure is put into place. The structure will sometimes change, depending on the statutory requirements and regulations in the new country to which the South African tax resident person is emigrating and becoming tax resident of.”
He urges individuals looking at offshore structuring, purchasing offshore property and/or emigrating, to seek the advice of tax advisors, emigration specialists and offshore structuring specialists to ensure that they are well informed regarding their options.
Edited by Gudrun Kaiser