By Kemp Munnik, Head of Structured Solutions: Bravura
Ultra High Net Worth Individuals (UHWNI) and families globally are consistently in the spotlight for various reasons for example lavish lifestyles, divorces, tax evasion etc. In South Africa this is certainly similar but the reasons for the spotlight are a bit different. Currently with the uncertain political environment and South African Revenue Authorities putting pressure on the wealthy to collect more tax South African UHWNI are seriously considering formally emigrating or at least obtaining a second passport in a jurisdiction which is more stable or at the very minimum seek to externalize a portion of their wealth.
But maybe before we continue, it is worthwhile to determine who qualify to be called an UHWNI. The latest Knight Frank Wealth Report 2024 defines dollar millionaires as individuals with investable assets of over $1 million (approx.R19 million), centi millionaires are individuals with more than $100 million (approx.R1,9 billion) in investable assets.
The South African Revenue Services has initiated an Ultra High Net Worth Unit to specifically focus on wealthy individuals in South Africa. Their definition of an UHWNI is someone with assets whose market value equals or exceeds R75 million according to the latest information on their website.
Based on the report South Africa was, at the end of 2023, home to around 37 400 US dollar millionaires which includes 102 centi – millionaires and five billionaires. This is a 20 % decline from 2013. The report also shows that South Africa lost 11 UHWNI in the last year while thousands more millionaires have been lost in the last decade.
The loss of the super wealthy could be through emigration or destruction of local wealth because of the poor performing economy, additionally because of the exchange rate movement.
Recently there have been numerous discussions or proposals around implementing a wealth tax to increase tax collections from the wealthy but so far nothing has come to fruition, although in certain constituencies this idea has not died down.
The introduction of the National Health Insurance adds fuel to the fire as this would ultimately result in another form tax to fund the programme.
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Safety, security and worries about education and healthcare are key considerations for Ultra-High Net Worth Families.
Formal emigration has increased of the last few years and the latest New World Health Report supports this fact. As a business we experience more and more clients coming to us to assist with their planning and actual implementation of their plans to either emigrate or externalize some of their wealth.
Whichever decision such individuals take – either to emigrate or externalize some or all their assets – they cannot do it on their own. The rules and or requirements to comply with SARS Regulations is too onerous and complex. In South Africa there are complex tax and exchange control rules to consider and when getting it wrong could be very costly. Additionally, linked to this are the rules and requirements to adhere to in the foreign jurisdiction that is to become their new home.
For example, we recently had a family who was not aware of all the exit tax charges applicable and when finally comprehending this, they had no liquidity to settle the outstanding tax and had to realize certain assets at a huge cost which they did not plan for.
This is where the role of the advisors become critical be it investment advisors, tax advisors or emigration specialists who understand the environment of moving families to foreign countries.
Advisors with international networks are even more important as this usually ensures a smooth process and gives assurance to the individual that all aspects are covered.
For UHWNI it will be worthwhile to engage with the various advisors well in advance in order for the advisors to work together in developing a robust strategy around timing, investment allocation and effective tax planning. Supporting this approach is where a family is currently planning to relocate to the UK and we, together with the investment advisors as well as the advisors in the foreign jurisdiction are drafting a strategy to ensure the assets that are being externalized do not fall within the UK estate net and the minimum exit tax charges applicable in South Africa are paid.
The current wave of UHWNI leaving South Africa, although not good for South Africa, provides an opportunity for advisors to add value to their clients and ensure they play a role in realizing their client’s dreams.