What if you are a dual citizen and want to move abroad at retirement? Can you take any amount of money out of your retirement annuity in South Africa and move the money to a foreign bank account? The de minimis rule still applies to retirement annuities (RAs) in South Africa, and it’s a helpful provision to understand when planning your retirement strategy.

1. Does the de minimis rule still apply to RAs?

Yes, the de minimis rule still applies to retirement annuities. Here’s how it works:

  • Definition of the de minimis rule: If the value of your RA is R247 500 or less at the time of retirement, you can withdraw the entire amount as a lump sum. This rule applies to retirement annuities, preservation funds, and pension or provident funds.
  • Tax treatment: When you make a lump sum withdrawal, the first R550 000 is tax-free (subject to other lump sums withdrawn previously). Any amount above this tax-free threshold will be taxed according to the retirement lump sum tax tables.

This provision allows retirees to avoid the annuitisation requirement (i.e., having to purchase an annuity) for small balances, providing flexibility and access to the total amount.

2. RAs and emigration for dual citizens

If you’re a dual citizen and planning to move abroad permanently, there are specific rules and options available for accessing your RA funds:

Withdrawal of funds upon emigration:

  • Withdrawal before retirement age: As of 1 March 2021, the concept of financial emigration has changed. South African tax residents need to prove non-residency for tax purposes for at least three consecutive years before they can access the total value of their RA. If you meet this requirement, you can make a complete withdrawal from your RA, regardless of the amount.
  • Withdrawal at retirement age: If you reach the retirement age (usually 55 or older) while still a South African tax resident, the de minimis rule of R247 500 applies. However, if your RA is above this threshold, only one-third can be withdrawn as a lump sum (with tax implications), and the remaining two-thirds must be used to purchase an annuity.

Transfer of funds to a foreign bank account:

  • Once you have successfully withdrawn funds from your RA (whether due to reaching retirement age or after meeting the non-residency requirement), you can transfer these funds to a foreign bank account, subject to South African Reserve Bank (Sarb) approval.
  • If you’re no longer a South African tax resident and have completed the tax emigration process, you can access and transfer your funds without restriction, aside from standard exchange control regulations.

3. Specific considerations for dual citizens

If you’re retiring in South Africa:

  • The de minimis rule applies. If your RA value is R247 500 or less, you can take the total amount as a lump sum and transfer it abroad, subject to exchange control regulations.

If you’re moving abroad permanently:

  • If you want to withdraw the total RA amount before reaching the retirement age of 55, ensure you meet the three-year non-tax residency requirement.
  • Once withdrawn, you can transfer the funds to a foreign bank account, subject to Sarb regulations and approval.

4. Practical advice

  • Plan timing of withdrawal carefully: If your RA is above the de minimis threshold, consider whether to withdraw at retirement age or wait until you qualify as a non-tax resident. This will impact your ability to access the total amount as a lump sum.
  • Consult a tax advisor: It’s advisable to consult with a tax professional who understands cross-border tax implications, especially if you’re a dual citizen. This will help ensure that your withdrawal strategy and fund transfer comply with South African and international tax regulations.

Conclusion

The de minimis rule still applies to retirement annuities, allowing you to withdraw the entire amount if it is R247 500 or less. If you are a dual citizen and planning to move abroad, you must meet the three-year non-residency rule to access the total amount of your RA before retirement age. Once you have withdrawn your funds, transferring them to a foreign bank account is possible with Sarb approval, and the de minimis rule does not restrict this process.

 

Article credit: https://www.moneyweb.co.za/qa/advisor-questions/does-the-de-minimis-rule-still-apply-to-retirement-annuities/