Opportunities in a challenging investment environment

The current state of the South African economy and political instability has created a challenging environment for local investing. The risks associated with investing in the local market are eroding real returns year on year, and excessive taxation further compounds the problem. This has led many South Africans to look beyond the country’s borders for investment opportunities.

The solution for high-net-worth individuals (net worth of $1 million or R20 million, which amounts to about 600 000 people) and those just below this threshold (wealth in excess of $100 000, which increases the numbers to around 2 million) is to invest outside South Africa through an offshore trust. This can be a challenging economic decision, but it offers a way to protect assets and enhance returns.

Mitigate risks

Offshore trusts are not illegal structures; they are understood by the South African Revenue Service (Sars) and the South African Reserve Bank (Sarb). Investing in an offshore trust can provide South Africans access to a broader range of investment opportunities and mitigate the risk of any local market fluctuations.

Moreover, investing in an offshore trust can protect from political and economic uncertainties. By diversifying assets outside of South Africa, individuals can reduce the risk of losing everything in a single country if there is a political or financial crisis.

Although it won’t harm if Government could implement policies that encourage investment in the local economy, the reality is that many South Africans may need to look beyond the country’s borders for investment opportunities.

High-net-worth individuals can explore offshore trust options with the help of a financial advisor and take advantage of the benefits they offer. In addition to the benefits of investing outside of South Africa through an offshore trust, there are other positive mechanics of a trust that can be advantageous for more affluent individuals. These include family estate planning, wealth and asset protection, and succession planning.

Manage assets

Estate planning is essential for wealthy individuals who want to ensure that their assets are passed down to their heirs in a tax-efficient manner. An offshore trust provides a structure that can be used to manage and distribute assets that align with the individual’s wishes.

Wealth and asset protection is another essential aspect of an offshore trust. Placing assets in a trust protects them from creditors, legal claims, and other risks. This can be particularly valuable for individuals who own a business or have other high-risk assets.

Succession planning is another crucial consideration. Offshore trusts provide a structure for managing the transfer of ownership and control of assets to the next generation.

This is particularly important for family businesses, where the succession process can be complex and emotional.

Investing in an offshore trust is a way to mitigate the risks of investing in the South African economy and take advantage of the positive mechanics of a trust itself.

Proper guidance

With the guidance of a financial advisor, individuals can explore the benefits of an offshore trust and protect their assets for future generations with enhanced returns, given generous taxation advantages.

Henry Hollingdrake is a business development director with Invicta Wealth Solutions (Guernsey) and an independent international tax, asset protection and estate structuring consultant.