Investing offshore can be intimidating, and holding cash in a foreign bank account is often perceived as an easy way to gain offshore exposure. However, it is likely that the investor’s money won’t grow due to very low interest rates, and on death, it can be complicated and costly to deal with this asset.
The investor’s cash could show little or no growth over time.
Depending on where the bank account is held, offshore probate may apply on the death of the investor. This means that an overseas agent, similar to a South African executor, may have to be appointed to deal with the bank account, which could be a lengthy and expensive process.
Overseas inheritance tax may also apply, which can be as high as 40%, depending on the country where the account is held. What’s more, estate duty may be payable in South Africa as the worldwide assets of a South African resident are subject to this tax. There may be a double taxation agreement between the countries that could provide some relief, but it’s still possible that the higher foreign inheritance tax will be applicable.
The foreign bank account will be frozen while the estate is being finalised. This process can be lengthy and the deceased’s family and dependents will not be able to access the cash until the estate has been wound up.
Bearing this in mind, a foreign bank account may be useful for those going on an overseas vacation in a few months’ time or to meet other short-term offshore funding needs. It is key to obtain financial advice to ensure proper estate planning in respect of all your assets. For those investors who are looking to build up an offshore nest egg over time, there may be other, more efficient investment options to consider.
Our offshore solution, Investec GlobalSelect Access,1 provides simplified, flexible access to offshore markets. Investors can choose from a wide range of unit trust funds, which include money market and income funds. Because the funds are held in a policy, they offer a host of benefits:
Choosing a suitable fund
As mentioned earlier, foreign cash may be prudent for some investors as a short-term parking facility. But it is all too common for investors to have ‘lazy’ money in a foreign bank account for an unspecified period. Holding foreign cash rather than a diversified basket of assets can be risky, as investors are purely exposed to the exchange rate, which can be volatile.
Longer-term investors who seek an alternative to foreign cash, could consider accessing a low equity multi-asset fund, such as the Investec Global Multi-Asset Income Fund (the Fund), via our offshore policy. The Fund, which aims to produce attractive income with capital growth over the long term, invests in a mix of global fixed income assets and equities. Equity exposure is no more than 40% of the value of the Fund. Investors can invest directly into the Fund’s dealing currency (US dollar).3
Investors need to carefully consider the investment vehicle they choose when investing offshore. Investec GlobalSelect Access offers investors estate planning and tax benefits, and a range of funds to meet their needs.
For more information on how Investec GlobalSelect Access works, please visit our website, www.investecassetmanagement.com. Investors should speak to their financial advisors who can help them make an informed choice.
1 Investec GlobalSelect Access is a sinking fund policy, governed by the Long-Term Insurance Act. A five-year term applies, but investors can access their capital plus 5% growth via a loan and/or a surrender, at any time during this period – without being subject to any penalties. Certain restrictions also apply in respect of the maximum contributions investors may make in a year.
2 No foreign inheritance tax will be payable on the death of a South African resident investor. The investor is not the owner of the underlying assets, but owns a policy issued by IAL acting through its Guernsey branch. Currently, no inheritance tax is payable in Guernsey.
3 The dealing/base currency that will be applicable (US dollar, pound or euro) will depend on which GlobalSelect fund an investor chooses.