With markets having risen sharply, many investors are now facing potential capital gains tax (CGT). What strategies can be used to reduce the tax implications?
You’ve raised a great question, and it’s an important consideration given how strongly markets have performed. Fortunately, there are a few practical strategies to help reduce the tax impact by making use of the concessions available.
1. Use the annual capital gains exclusion
With the new R50 000 annual CGT exemption, you’re able to realise up to R50 000 of capital gains each year without paying tax.
While this may seem modest in isolation, consistently making use of this exemption can meaningfully reduce your overall CGT exposure over time – especially on long‑term holdings where gains have built up.
2. Offset gains through retirement annuity (RA) contributions
You’re allowed to contribute up to 27.5% of your taxable income to an RA each year, now capped at R430 000.
These contributions are tax-deductible, which means that increasing RA contributions in a year where you’ve realised gains can help offset some, or in some cases most, of the tax payable.
This does shift funds from discretionary investments into a retirement vehicle, so it’s important to ensure your liquidity needs and overall investment strategy allow for this.
However, if you’re not currently maximising RA contributions, this can be a very effective way to lower tax.
By combining the annual CGT exclusion with your allowable retirement contributions, you can gradually reduce the tax implications of capital gains – without needing to make drastic changes to your portfolio.
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