High net worth individuals
Ray Harraway Encouraging savings through the use of tax-preferred savings vehicles is a fresh start to encouraging a savings culture and is along similar lines to the UK. This proposal will spawn a new industry in savings vehicles as the tax savings look meaningful with a life time limit of R500,000.
The steady march in stealth taxes on the net worth individuals continues, with a surprise move increasing the capital gains tax inclusion rate to 33% from 25%. This raises the top effective capital gains tax rate by 32% from 10% to 13.2% of any capital gain for high net worth individuals. The medical aid tax credit system also means high net worth individuals will lose the opportunity of receiving a deduction for medical aid contributions at higher tax rates.
Capping the deduction for retirement contributions can only be a disincentive to save in institutionalised retirement funding vehicles even if the disallowed portion of the contribution comes back as a tax free payment on retirement.
Reaching the age of 45 years has new significance - getting older means you get a higher capped deduction to your retirement fund. At first glance the caps look generous, but why have a cap if we want to incentivise savings?
