Video: Tax tips for pensioners

One of the great frustrations for pensioners is the fact that they usually pay tax on their retirement income despite having paid tax during their working lives.

It is important to do proper tax planning and seek the advice of a professional as there are several ways to reduce your tax burden.

All income from an annuity is taxable, but the good news is that for people over the age of 65 the tax rebate is increased to R21 780. This means you will pay no tax on the first R121 000 income a year. So you can earn R10 000 per month tax free.

When you reach the age of 75 the rebate increases to R24 354 so you can earn R11 250 per month tax free.

When it comes to tax on interest, anyone 65 or older does not pay tax on the first R34 500 of interest earned. If you are earning 6% per annum in interest, you can invest up to R570 000 in cash and earn R2 850 a month tax free.

If you have invested for retirement through a share portfolio, remember the first R40 000 of capital gains per annum is tax exempt. So you could generate a tax-free monthly income of just over R3 300 a month from capital gains by disinvesting from the portfolio.

You can also receive an income from the shares in the form of dividends. A dividend withholding tax of 20% is paid by the company issuing the dividends so is not taxable in your hands.

Remember if you and your spouse hold investments in your own names, you both benefit from the tax exemptions.

While trying to find more tax-efficient structures is tempting, beware of the many investment scams that take advantage of pensioners looking for higher tax-free returns. If it looks too good to be true, it usually is.

2 CommentsLeave a comment

  • Yes, I got caught for R100000.00 in just two short months, lost by investing in the Old Mutual Global Equity fund in late 2017. Money gone out of my precious Living Annuity after a lifetime of hard work, before I changed it to their Money Market fund. You would think that Old Mutual would protect it’s long-time investors from such Ponzi-like schemes. All Old Mutual could say is that I must sign up with an advisor again to fix it, but I don’t believe it could have been fixed. So, I am virtually only believing of a Money Market fund now in order to preserve my Living Annuity. And any other free cash into a Tax-Free Call account and fixed deposits with a leading Bank.

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