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Take a long-term view for a tax-free investment



Financial planners and advisers are always on the lookout for powerful strategies to help clients grow their wealth. In South Africa, tax-free investments (TFIs) have emerged as a valuable tool for long-term financial success. When it comes to long-term investing, TFIs offer unique advantages and financial advisers can help clients to use these tax-efficient vehicles optimally.

Three of the keys to the success of a tax-free investment are the ‘magic’ of compounding, the potential to weather market volatility by taking a long-term view, and the tax efficiency of a tax-free investment.

Compounding is the secret sauce that drives long-term investment success. By reinvesting returns and allowing time to work in your favour, the potential growth of a client’s investment accelerates, ultimately translating into greater wealth accumulation.

A long-term perspective helps clients ride out short-term market fluctuations and capitalise on the growth potential of their investments, reducing the impact of temporary downturns.

Tax-free investments, in particular, also offer a unique advantage when it comes to tax efficiency. With TFIs, clients can enjoy the growth of their investment without having to pay tax, making them a highly attractive option as part of a financial plan for wealth accumulation.

Given the tax advantages of TFIs, it is crucial to incorporate asset classes that would otherwise attract higher taxes and have the potential to generate inflation-beating returns over time. Equities have the potential to consistently deliver strong long-term returns and are a staple of many investment portfolios. By including equities in a TFI, clients can capitalise on potential growth without worrying about having to pay tax on any capital gains or dividends. Property as an asset class offers an appealing combination of growth and income generation, making them a valuable addition to a TFI without being subject to rental income and capital gains tax.

The illustration shows the meaningful effect that tax-free growth, coupled with the wonder of compounding, could have on an investment over the longer term. Although a tax-free investment gives clients the opportunity to withdraw money at any time, the benefit of leaving the money to grow for as long as possible should outweigh the urge to withdraw money unless it is for an extreme financial emergency.



Adopting a long-term perspective with tax-free investments can yield significant advantages for clients. By understanding the power of compound growth, mitigating the impact of market volatility, and selecting suitable growth asset classes, you can help clients to maximise the potential of their tax-free investments.

Each client’s situation is unique, which makes the decision about whether to make a tax-free investment part of a financial plan a very personal decision. By offering tailored guidance and focusing on long-term strategies, tax-free investments can become a powerful instrument for wealth accumulation. If clients have the discipline to invest tax free, and stay invested, they will reap the benefits. With growth assets and time on their side, they will experience money magic.

Introduced in 2015, natural persons can invest in approved investment products, tax-free. These investments are subject to a lifetime investment limit of R500 000, and a yearly investment limit of R36 000 (2020: R33 000). The growth and the proceeds from a tax-free investment are fully exempt from South African tax, with no capital gains tax and no tax on dividends and interest. Investments of more than the yearly and lifetime limits are taxed at 40%.


Momentum Wealth (Pty) Ltd (FSP 657) is an authorised financial services providers and part of Momentum Metropolitan Life Limited. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.