BLUE CHIP FINANCIAL PLANNING | Tax Why optimising tax incentives is a great way to create wealth Almost every financial decision your clients make has a tax implication. Just as fuel efficiency is one of the important aspects to consider when buying a car, so should tax be an important consideration for any financial plan and investment strategy. With the smart use of tax-incentivised investment products, your clients can create significant wealth with help from the taxman. Tax can be complicated and confusing and for most people it is a sensitive and personal subject they choose to avoid. But with a few smart moves, especially when planning for financial independence or retirement, they can benefit significantly from tax incentives and increase the probability of them achieving their investment goals. They can use two tax-efficient ways to create wealth over time: a retirement annuity and a tax-free investment (also known as a tax-free savings account). If they are already using one or both, they can invest more into them, within the limits, to make full use of the available tax opportunities. RETIREMENT ANNUITY Every tax year a person can claim a tax deduction for the money invested in a retirement fund. The tax deduction is limited to 27.5% of their taxable income or remuneration before any deductions are made, whichever is higher, subject to a maximum of R350 000. They can do this whether they are self-employed or earning a salary but not contributing the full amount to their employer’s retirement fund. If clients have not yet used the full tax deduction available to them for the tax year, they can make an additional lump sum payment to their retirement annuity before the tax year ends on 28 February 2023. In addition to the tax break clients get on the money they invest, they also enjoy tax-free growth in their retirement annuity – they don’t pay income tax, dividends tax or capital gains tax while the money is growing. But, some people say, when you retire you will pay tax on the income. This is true, but after the age of 65 clients could pay less tax because of lower income levels in retirement, higher rebates and higher deductions for medical expenses. TAX-FREE INVESTMENT Although clients don’t get a tax deduction for money they invest in a tax-free investment, they still enjoy tax-free growth. And they won’t pay any tax on the proceeds when they decide to take money out of the investment. Since the 2021 tax year, clients can invest up to R36 000 every tax year (R3 000 per month) in a tax-free investment, limited to R500 000 over their lifetime. Before this, the yearly limit was R33 000. Government may adjust these limits from time to time. The illustration (above) shows the significant effect that tax-free growth, coupled with the wonder of compounding, could have on an investment over the longer term. Although a tax-free investment gives clients the opportunity to withdraw money at any time, the benefit of leaving the money to grow for as long as possible should outweigh the urge to withdraw money unless it is for an extreme financial emergency. OPTIMISE AVAILABLE TAX INCENTIVES Investing is personal and each client’s circumstances unique. The secret is to make sure that clients use these tax incentives optimally according to their specific situation every year and consistently over time. By doing this they can reduce the effect of tax on their investments and increase the growth potential on their journey to success. Using the Retirement Annuity Option and the Flexible Tax-free Option on the Momentum Wealth local platform can help you implement tax-efficient investment solutions for your clients so that they can reap the full benefits of tax incentives available to all taxpayers every year. Pierre Jean Marais, Retail Marketing, Momentum Investments Momentum Wealth (Pty) Ltd (FSP 657) is an authorised financial services provider and part of Momentum Metropolitan Life Limited. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.
INVESTMENT | Thematic investing BLUE CHIP The dawn of thematic investing We live in an increasingly complex, connected and ever-changing world, where unprecedented digital innovations are disrupting entire industries and at a time when we are facing major human and climate challenges to build the world of tomorrow for future generations. It is also changing the way we look at investing. Thematic investing has become progressively more popular and focuses on the future investment landscape, targeting economic development and trends that will shape the future. It is a holistic solution that will not only focus on a single event or area of development but will capture a wide variety of themes that may affect the world. Disruptive innovations, ideas and societal changes are embraced in today’s world, and this is creating opportunities alongside it. Technological innovations, demographic and social trends, urbanisation and environmental challenges are here to stay, and the importance thereof is continuously being forced into the spotlight. These developments converge into larger themes that will endure over the longer term. All these themes create unique investment opportunities that will persist as disruptive ideas and technological advancements are rapidly reshaping the world we live in. However, not all themes are created equal. Some are structural and long term in nature and some are short-term anomalies but every change represents an investment opportunity. Thematic investing encapsulates the art of identifying these opportunities, based on personal experiences and aligning investments with beliefs and ideas. The Momentum Future Trends Fund is premised on a top-down investment approach that helps investors gain exposure to trends and ideas through a portfolio of companies expected to benefit most from such transformative and structural changes. Our unique and innovative investment approach favours themes where the fundamentals are not only about one specific sector. We believe six mega-trends will shape the future: • Climate change • Technological innovation • Demographic change • Lifestyle • Space exploration • Shifting economic power Diversification is important, thereby reducing the risk should a certain trend fail to materialise. We believe that an active strategy is the way to implement and manage the Momentum Future Trends Fund. The underlying themes will be executed through specialist mutual funds or exchange traded funds (ETFs). This ensures that we have control over the risk and allocation to themes. The Momentum Future Trends Fund is suited for investors with a long-term investment horizon and consenting to a high level of risk, while seeking to diversify their portfolios. The fund provides compelling investment opportunities for those willing to take a different perspective and concentrate on the big picture. In a broader multi-asset investment portfolio, this fund will give investors access to future trends that will shape the future of the world we live in, giving them access to higher-yielding growth asset classes that focus on future innovation. With us, investing is personal. With the Momentum Future Trends Fund, clients not only can grow their capital over the long term, but it also gives them the opportunity to help fund the way the future will shape and unfold. For more information go to momentum.co.za/MCI or speak to your financial advisor. Eugene Botha, Deputy Chief Investment Officer, Momentum Investments Momentum Collective Investments (RF) (Pty) Ltd (the “Manager”), registration number 1987/004287/07, is authorised in terms of the Collective Investment Schemes Control Act, No 45 of 2002 to administer Collective Investment Schemes (CIS) in Securities. The Manager is the manager of the Momentum Collective Investments Scheme. Standard Bank of South Africa Limited, registration number 1962/000738/06, is the trustee of the scheme. CISs are generally medium to long-term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. The terms and conditions, a schedule of fees, charges and maximum commissions and additional risks are available on the minimum disclosure document (MDD) and quarterly investor report (QIR) for each portfolio which is available on www.momentum.co.za/mci. All performance figures are net of fees and represents the A class in each portfolio. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider. www.bluechipdigital.co.za 31