Cartoon showing SA Tax and Foreign Tax inspectors checking a car labelled with endownment policy on the number plate

The suitability of your current investments is often an afterthought when you or your family members are living and working abroad, that is when you or your family cease your South African tax residency. But it can have a major impact on the value of your investment.

For example, a popular vehicle for investing is through an endowment policy (colloquially known as a “wrapper”). But, as we discuss below, this may not be the most tax efficient investment if you or your family are non-SA tax residents.

Benefits of an endowment policy for SA tax residents

If you are an SA tax resident and your marginal income tax rate is higher than 30%, an endowment policy can be beneficial to you, because the insurance company is liable for the South African tax during the investment term, at a rate of 30% on income and an effective rate of 12% on capital gains. You as the policyholder (or the beneficiary if paid out on death of the life assured) will therefore receive the proceeds from the policy net of tax and fees and free of tax compliance in South Africa.

Another benefit is that the pay-out to the named beneficiaries on death of the life assured is outside the deceased administration process (i.e. it pays out directly to the beneficiaries and does not form part of the estate winding up process). This makes an endowment policy, in some circumstances, a nice liquidity tool for your beneficiaries on death.

As an SA resident, you should note that the policy and/or proceeds paid out from the policy on maturity will still form part of your estate from an estate duty perspective, unless your spouse is nominated.

What happens if the policyholder or beneficiary is a non-SA tax resident?

It’s here where things get complex. In general, regardless of whether the policyholder or beneficiary is an SA tax resident or not, the insurance company will be subject to tax in South Africa.

However, in addition to the aforementioned tax payable by the insurance company, the non-SA tax resident policyholder or beneficiary may also be liable for tax in the new country of residence. For example, the US, UK, Portugal and Australia will (in some way and/or under certain circumstances) tax the policyholder.

This may lead to double taxation because of the mismatch in taxpayers. In other words, the insurance company will be liable for tax in South Africa and the non-resident policyholder or beneficiary may be liable for tax in the new country of residence.


Each country has its own rules and legislation, when dealing with the tax consequences of endowment policies/wrappers. Therefore, it is critical that specific in country tax advice is sought. Furthermore, it is always important to consider the suitability of an investment from a tax efficiency perspective before you or your family cease to be an SA tax resident.

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