Updated 12.06.2021

How to Make Tax-Free Investment in South Africa?

It’s hard to save more money when even the cash you keep inside your bank account gets taxed. Even your investments in the stock market, bonds, and other financial products have dividends and capital gains tax that affect how much you earn in them.

So, is there a way to save on taxes while taking advantage of the compounding returns of investment instruments? Let’s find it out below. 

Creating a Tax-Free Investment

Luckily, the South African government introduced tax-free investments in 2015 to help boost household savings. The goal is to encourage you to put money in different financial instruments without worrying about the associated taxes.

The following financial instruments are qualified for tax-free investments:

  • Endowment policies
  • Exchange-traded funds (ETFs)
  • Fixed deposits
  • Linked investment products
  • Retail savings bonds
  • Unit trusts, specifically collective investment schemes

Tax-free investments can only be given by authorized banks, licensed insurers, and managers of registered collective schemes. The national government, mutual banks, and co-operative banks can also issue tax-free investment schemes.

To create a tax-free investment account, just call your preferred bank and inquire for more details about it. 

Reminders on Handling Tax-Free Investments

Here are the major points to remember when creating a tax-free investment account:

  • Contribution limit

You can contribute up to a maximum of R36 000 a year. 

So, what if you deposit only a portion of this? Can the unused cap be carried forward to the following year and so on?

Sadly, any unused cap can’t be carried over to the new tax year. 

For instance, if you deposit only R30 000 this year, the unused R6 000 won’t be carried forward to the following year and increase your limit to R42 000. You’ll still be following the R36 000 deposit cap the next year.

Tax-free investments also have a maximum limit, so you can’t deposit the full R36 000 into your account each year until retirement. There’s a lifetime cap of R500 000 per person which means you can only put up to this amount into a tax-free savings account.

  • Penalties

Be careful not to deposit more than the annual limit. Exceeding the limit will incur a 40% penalty on the excess amount. 

For example, you deposit R40 000, exceeding the annual cap by R4 000. The excess amount will be penalized by 40%, so R1 600 of this will go to SARS instead of your tax-free investment account.

  • Number of accounts

You can manage more than one tax-free investment, but the annual and lifetime limits will still apply on all accounts. This means you can’t have accounts in Investec, Standard Bank, and ABSA, and deposit R36 000 on each of them without incurring penalties. 

What you can do is deposit R12 000 on each one, so that the total amount doesn’t exceed the annual per person deposit limit on tax-free investments. 

  • Withdrawals

You can withdraw from your account, but you won’t be able to reinvest the same amount without affecting the annual and lifetime limit.

For instance, if you withdraw R50 000 from your tax-free investment account, you can’t put back the same amount of money without violating the annual R36 000 limit. 

If you’ve already reached the R500 000 lifetime limit and you withdraw R50 000, you can’t put back the same amount because you’ve already reached the lifetime deposit cap.

ALSO LEARN: Top 8 Best Tax-Free Savings Account in South Africa 2020

Choosing a Bank for Opening a Tax-Free Investment Account

When creating a tax-free investment account with your preferred institution, look at the following factors that may affect your investing activity:

  • Minimum transaction size

While there’s a maximum amount you can deposit in a tax-free investment account, there’s also a minimum contribution requirement. 

  • Portfolio diversification

What are the investment options can you put your money in through your account?

Banks will often give you access to Exchange-traded funds (ETFs), bonds, and fixed deposit savings schemes. 

  • Fees

Withdrawal fees, brokerage fees, and administrative fees can pile up and reduce your investment gains.

You may end up paying the taxes you’ve saved on fees that banks charge for transactions and account maintenance. Make sure you shop around for the institution with the friendliest fees so you can maximize the gains on your tax-free account.

If you have questions regarding tax-free investments, you can contact the bank you’re considering. Alternatively, you can call or visit the nearest SARS branch to help you with any concerns regarding the financial product.

ALSO LEARN: 10 Easy Ways to Invest Without Much Money in South Africa


Tax-free investments can significantly boost your lifetime savings by empowering you to invest in different financial vehicles. So long as you remain within the prescribed limits for this special type of investment account, you’ll be safe from penalties that can bog down your financial progress.

Still, be wary of the fees that banks charge for maintaining a tax-free investment account. Choose the institution with the least fees and the most convenient way to access your money for a hassle-free investing.

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