An annuity is comprised of a capital portion and an income portion. Only the income portion is remittable, which means that the largest portion of the annuity will become blocked if the emigrant has already taken the full settling in allowance. Because the income from a voluntary annuity is classified as income and not interest, tax must be withheld before the income portion is remitted offshore. If the emigrant also pays tax on the income in the country of residence, he will have to apply for a tax credit in South Africa to the extent of the tax paid so that there is no double taxation. This is subject to any treaty with the country of residence.
Unit trusts are an authorised investment avenue for blocked rands.
All of the interest and dividends from unit trusts may be remitted offshore. However, the growth of equity unit trusts is classified as capital and will not be automatically transferable. However a unit trust money market or income fund is a particularly good investment for emigrants, especially in times of high interest rates. As stated above, non-residents are exempted from paying tax on their interest earned in South Africa if they are resident abroad for at least 183 days per year. Please note that, due to the technical nature of exchange control regulations, clients are advised to contact their professional adviser before taking any decisions based on the information above.