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Investment views

The cash conundrum

8 November 2019
Author: Albert CoetzeeCo-Head of Sales Investec IMS

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:

Investors don’t have to worry about personal tax reporting. Investec Assurance Limited (IAL) takes care of all the tax administration by calculating and paying any tax due on behalf of investors.

No income tax is applicable, only capital gains tax (CGT) when switching funds or selling units. This is because the underlying investments are in roll-up funds, so interest income and dividends are not distributed – investment income is capitalised. What’s more, CGT is taxed at a rate of only 12%, versus a maximum effective rate of 18% for investments not wrapped in a policy. So, there may be attractive tax benefits for investors being taxed at a higher marginal rate when investing in a unit trust fund via our offshore policy.

Investors can nominate a beneficiary who will receive the benefits on their death, thereby avoiding some of the offshore estate costs associated with foreign bank accounts and offshore unit trust funds that are not held in a policy.

There is no need to appoint a foreign agent to deal with this asset if there is a nominated beneficiary, and no offshore inheritance tax2 nor South African executor fees will be payable. However, estate duty may apply in South Africa.

On the death of the investor, the proceeds of the policy will be exempt from CGT, if the policy is transferred to the nominated beneficiary.

After transfer, the beneficiary will have immediate access to the investment and no investment term will apply.

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, 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.

Albert Coetzee
Albert Coetzee Co-Head of Sales Investec IMS

Important information

All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. We endeavour to provide accurate and timely information, but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Prospective investors should consult their financial advisors before making related investment decisions. This is the copyright of Investec and its contents may not be re-used without Investec’s prior permission. Investec Investment Management Services (Pty) Ltd and Investec Asset Management (Pty) Ltd are authorised financial services providers.
Issued, November 2019.

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