As families spread their financial lives across borders, the need for effective offshore structuring has never been greater. Clients are increasingly seeking ways to protect their assets, plan for succession, and manage taxes across multiple jurisdictions.

Offshore planning has always been a balancing act between protection, tax efficiency, and long-term control. With increasingly stringent compliance requirements and global tax authorities intensifying their oversight, navigating this world has become more complicated and expensive.

From our experience, there is no perfect, one-size-fits-all solution. Each decision is shaped by your circumstances, long-term goals, the jurisdiction in which family members reside, cost considerations, and the level of flexibility and control you wish to retain.

Below, we outline some of the most popular options and discuss where each may be suitable.

It’s important to note that there are many offshore funds/solutions available to South African investors. Still, many are Rand-denominated offshore funds or solutions, which means you are not physically externalising your funds by using your annual foreign investment allowance.  In this article, we focus on “pure” offshore investments where Rands are externalised.

 

Global stockbroking or investment accounts

A global stockbroking or investment account gives you direct access to international markets. It allows you to buy and sell shares, unit trust funds, exchange-traded funds (ETFs), and other listed securities in foreign currency.

 

Why do we like it?

  • You can hold specific investments like listed shares from a previous employer, for example, Microsoft shares.
  • Straightforward and easy to manage.
  • Low cost.
  • Usually highly liquid, depending on the instrument you buy.
  • If held in a tax-neutral jurisdiction, there should be no additional tax consequences or complexities, if you continue to report the asset and any revenue that is generated by the asset to SARS.
  • Globally recognised so that you can live and administer from anywhere in the world (subject to tax rules of the jurisdiction you live in).

 

What to watch out for:

  • In South Africa, income, dividends, and capital gains are taxed at your marginal rate and must be reported on your annual tax return. Many global stockbrokers lack SA-friendly tax reporting, necessitating manual tracking.
  • On death, estate duty, capital gains tax (CGT), and executor’s fees apply (spousal deductions available).
  • With the Master’s Office in disarray, delays in transferring assets to beneficiaries are possible.
  • Foreign accounts should be easy to wind up with your South African will, but some jurisdictions apply probate*, which can cause further delays.
  • Holding UK or US-listed shares may trigger UK or US situs tax (inheritance tax), which is significantly higher than SA estate duty.
  • Minor beneficiaries: If your will allocates funds to minor beneficiaries (via a testamentary trust), assets must be liquidated and returned to South Africa. You can request to keep funds offshore, but approval from the Reserve Bank is required.

*Probate is the legal process of validating a will, settling debts, and transferring the deceased's assets to heirs. It can take months, incur significant legal costs, involve public disclosure, and result in delays for beneficiaries to receive their assets.

 

When it works best:

A truly global solution for those who want a low-cost, flexible option with direct control and without structural complexity.

 

Global endowment/sinking fund

An offshore policy that wraps your investments in an insurance structure, providing tax and estate planning benefits with access to a wide range of global funds and listed instruments.

 

Sinking Fund

  • There is no life assured on this policy, which means it does not provide creditor protection.
  • Upon the owner’s death, the policy may continue in the name of the nominated beneficiary (or beneficiaries).

If there are multiple beneficiaries, the policy will be divided into separate policies for each one. Should a beneficiary prefer to receive cash instead of continuing with the policy, they may withdraw the funds; however, this withdrawal will trigger CGT.

 

Endowment

  • There is a life assured, which means that the policy will be protected from creditor claims. 
  • Multiple beneficiaries for Ownership: Works like a sinking fund, but on the death of the last life assured, ownership automatically transfers to the nominated beneficiaries on the owner’s death.
  • Beneficiary for proceeds: The policy ends when the last life assured dies and pays out to the nominated beneficiaries.

 

Why do we like it?

  • Ensures a smooth and quick transfer of assets directly to beneficiaries, avoiding the Master’s Office process where assets first form part of the deceased estate, an executor is appointed, and distribution only happens once the estate is wound up — often causing delays and added costs.
  • Income, dividends, and gains are taxed in SA at lower rates than top marginal brackets (income tax 30%, effective CGT 12%).
  • Taxes are paid within the structure; therefore, no complex personal tax reporting.
  • On death, only estate duty applies, no CGT for sinking funds/endowments with beneficiary ownership, and no executor’s fees.
  • Avoids situs tax on US and UK-listed shares.

 

What to watch out for:

  • Costs are often higher than direct investments.
  • Some jurisdictions don’t recognise endowment structures; offshore beneficiaries may face local taxation on proceeds.
  • Liquidity restrictions may apply in the first 5 years.
  • Adding more than 120% of the previous 2 years’ contributions will extend the term by 5 years again.
  • As a policy, there is a balance sheet risk with the life company.
  • Minor beneficiaries
    • In South Africa, minor children (under 18) can inherit assets, but they are not legally permitted to manage them themselves due to their lack of legal capacity. Instead, their legal guardian has the duty to act on their behalf. By law, both biological parents are co-guardians (whether married or divorced). If one parent dies, the surviving parent becomes the sole guardian. If that parent also dies, the guardian they named in their will takes over, provided they accept the appointment.
  • Beneficiary for Proceeds
    • If a minor is named as a proceeds beneficiary, payment will be made according to the guardian’s instructions — into the guardian’s bank account, the minor’s account (if they have one), or even an offshore account (with SARB approval).
    • Payment to a guardian is considered valid as a third-party payment.
    • If a testamentary trust exists, funds must be brought back to South Africa and paid into the trust’s bank account.
    • If there is no guardian, the funds are paid into the Guardian’s Fund and managed on the child’s behalf until age 18.
  • Beneficiary for Ownership
    • If a minor is named as an ownership beneficiary, the policy continues in their name, but the guardian controls it until they reach majority age.
    • A South African minor may need to apply for SARB approval to keep the plan offshore (this depends on which platform you use), which requires tax registration with SARS. This approval is only needed when the minor takes over the plan.
  • Global “Freezer” Trust
    • A dormant trust set up in advance (with no assets until activated).
    • It can be useful to keep assets offshore for children, but it may be costly once activated.

 

When it works best:

For South Africans wanting a relatively cost-effective way to reduce and simplify tax while ensuring smooth intergenerational asset transfers.

 

Global trust

A legal structure set up in a tax-neutral offshore jurisdiction to hold and manage assets internationally.  It is commonly used for estate planning, tax efficiency, and asset protection.

 

Why do we like it?

  • Growth within the trust can be excluded from your estate, reducing estate duty.
  • Trust assets don’t fall into beneficiaries’ estates, transferring smoothly from one generation to the next.
  • Particularly effective for keeping assets offshore for minor children.
  • Can manage and administer from anywhere in the world.

 

What to watch out for:

  • A trust can sometimes help reduce or avoid situs taxes, but this is not guaranteed. For instance, the UK has introduced rules to prevent this benefit. Because a trust does not have a date of death, the UK applies a “10-year anniversary charge.” This means that every 10 years after the trust is created, any situs assets above £325,000 are taxed at a flat rate of 6%. In addition, reporting to HMRC is required.
  • Funds can be transferred to a trust either through a loan account or a donation.  Both have serious tax consequences (Sec. 7C).
  • SARS recently changed the rules in that local trusts may now distribute funds to a global offshore trust, subject to taxes paid within the local trust first. 
  • More complex and expensive to administer than other structures.
  • Loans remain in your estate for estate duty purposes, though growth stays outside.
  • Trustees must be independent and offshore, which can limit control and slow decisions.
  • Some jurisdictions don’t recognise trusts; others (like the UK) may apply look-through tax rules after a few years.

 

When it might make sense:

For long-term, multi-generational legacy planning with high-growth offshore assets, especially where there are minor children. Best suited for large enough asset values to justify the higher costs.

 

Offshore pension funds

Offshore pension structures are sometimes promoted as clever tax strategies and/or as a way to move extra money into a “pension” so that it falls outside your estate. While they may sound appealing, a 2022 SARS ruling seems clear that these pension structures can have adverse income tax consequences and that the holdings may fall within the investor’s estate. Unfortunately, there are still some uncertainties about how SARS will treat these structures. For this reason, Foundation chooses not to use these structures. We prefer solutions that are clear, reliable, and in the best interests of our clients.

Contributions to the offshore pensions are not tax-deductible, as they are not recognised as a retirement fund under the Income Tax Act.  In practice, when income is drawn at retirement, it is fully subject to tax at the individual’s marginal rate. If, instead, it is treated as a capital asset, the withdrawal would be taxed as a capital gain. Given these unresolved issues, we believe a cautious and transparent approach serves clients best.

 

So, what's the right structure?

Choosing an offshore structure can be daunting, as each option comes with its own benefits and drawbacks. You’ll always give up one advantage to gain another. Your choice should be guided by what matters most to you:

  • Tax savings
  • Ease of transfer
  • Minor children’s considerations
  • Cost
  • Flexibility
  • Simplicity

 

From experience, overly complex structures often create unintended consequences, solving one problem while introducing new ones. SARS is also tightening its grip on structures, inter-entity loans, and trusts. Their measures, while aimed at closing loopholes, often have far-reaching effects, impacting even those who were not exploiting the rules. And this appears to be a moving target, as tax regulations seem to change from year to year.

This is why good holistic advice is crucial. A global trust and fiduciary specialist may focus on estate planning, whereas an accountant may focus on tax benefits. We believe our strength lies in helping you consider all the factors to find what suits your objectives while working with specialists. Family members in different jurisdictions may also need tailored solutions — for example, US beneficiaries are often best served by inheriting directly, while South African beneficiaries can benefit from endowments.

Ultimately, the right solution is not about pursuing every possible advantage, but about making informed trade-offs that align with your goals, family circumstances, and values.

 

 

<Foundation Family Wealth is an Authorised Financial Services Provider>