Tax-free savings accounts
A tax-free savings account (TFSA) is the only investment where all growth, interest, dividends and withdrawals are completely tax-free.
- Contributions are limited each tax year and over your lifetime.
- Contributions above the limits attract a heavy penalty.
- Withdrawals are allowed, but money taken out cannot be put back without using up your contribution limit.
- TFSAs are available as unit trusts, and as fixed deposits or money market accounts for those who prefer fixed income.
Retirement annuities
Inside a retirement annuity there is no tax on interest, dividends or capital gains, and contributions are tax-deductible up to a set percentage of your taxable income, within an annual cap.
It is not entirely tax-free: income from the annuity you buy at retirement is taxed, but a portion of retirement lump sums over your lifetime is tax-free. See unit trust vs retirement annuity.
The interest exemption
Every individual can earn a certain amount of local interest each year without paying tax on it, and the exemption is higher from age 65. Interest from savings, fixed deposits and money market funds counts towards it.
The capital gains exclusion
A portion of the capital gains you make each year is excluded from tax. Selling investments gradually over several tax years, rather than all at once, can keep gains within the exclusion.
Endowments: tax-paid, not tax-free
Endowment policies pay tax inside the policy at fixed rates on interest and capital gains. That is not tax-free, but it is often lower than the marginal rate of higher earners, and the proceeds are paid to you without further tax.
The best tax-free retirement investments
For most people, the most tax-efficient retirement plan combines a retirement annuity, for the deduction and tax-free growth, with a tax-free savings account, for flexible tax-free money in retirement. We structure both around your income and goals.
Read more in our Record of Advice or low-risk retirement investments.
Frequently asked questions.
What investments grow tax-free in South Africa?
Tax-free savings accounts are fully tax-free within their limits. Retirement annuities grow free of tax inside the fund, and small amounts of interest and capital gains are exempt each year.
Can I get a tax-free fixed income investment?
Yes. Many banks and investment houses offer tax-free savings accounts as fixed deposits or money market funds, so you get fixed income with no tax on the interest.
Can I have more than one tax-free savings account?
Yes, but the annual and lifetime contribution limits apply across all your accounts combined.
Should I use a tax-free savings account or a retirement annuity?
They work well together. The RA gives a deduction now and is locked until retirement, while the TFSA gives flexible tax-free growth. Most people benefit from both.