The tiny islands rich South Africans are moving their money to

Rich South Africans are increasingly moving their money to Isle of Man discretionary trusts to protect, grow, and pass on their wealth. 

This is not a new trend, with rich South Africans having used offshore havens to store their wealth outside the country for decades. 

South Africa’s biggest banks have offshore banking operations in these tax havens, with the Channel Islands, such as Guernsey and Jersey, and the Isle of Man being firm favourites. 

Located off the coast of France, they are not part of the United Kingdom (UK) or the European Union (EU). Crucially, this ensures that they can give clients access to both the financial markets in the UK and the EU through various agreements and enable clients to transact internationally.

The country’s Big Four Banks – Absa, Standard Bank, Nedbank, and FirstRand (FNB) – all provide services enabling their clients to access transactional banking and savings and investment products outside of South Africa.

Sovereign Trust South Africa’s Coreen van der Merwe noted that these islands are also characterised by stability and security, making them increasingly attractive places to store wealth. 

Van der Merwe explained that Isle of Man discretionary trusts are becoming increasingly popular vehicles for rich South Africans to leverage what these offshore havens have to offer. 

She pointed out that this stands in stark contrast to South Africa’s current economic and political environment, which is characterised by instability and uncertainty.

This trust is typically made up of a settlor who has the intent to create a trust, a clearly identifiable trust asset and a corporate trustee that assumes legal ownership on behalf of beneficiaries. 

“This structure is designed to endure. It offers continuity and protection even when personal circumstances change,” Van der Merwe said. 

Beneficiaries do not own the assets – they only have the hope of benefiting. This distinction, combined with the island’s well-established trust laws, makes the structure attractive for high-net-worth individuals seeking long-term planning solutions.

Layered on top of that is the Isle of Man’s tax environment – 0% income tax, no capital gains tax, no inheritance tax, and no withholding tax on distributions.

Key advantages include the preservation of wealth for future generations without the fragmentation that often occurs, and succession planning that avoids the delays and costs. 

Trust structures also provide robust asset protection from potential creditors, business risks, or relationship breakdowns, while ring-fencing assets such as farms, holiday homes and business interests that cannot be easily subdivided. 

Big banks beef up

South Africa’s Big Four have increased their offshore presence in recent years, looking to capitalise on increased capital flows between Africa and the rest of the world. 

These banks have historically offered these services to corporate clients looking to expand globally or invest in Africa. As a result, they have offices spread across global financial hubs such as New York, London, and Hong Kong. 

When it comes to personal banking, these banks have turned to the Channel Islands to create a physical presence due to their stability and favourable operating environments. 

FNB recently celebrated the 10-year anniversary of its international banking and savings operations in Guernsey, revealing strong growth in the bank’s offshore offering. 

What began as a strategic initiative to support the international banking needs of South African clients has become an extensive banking platform.

FNB Guernsey CEO Aneesa Razack explained that South African clients increasingly demand offshore banking services to store wealth outside of the country. 

“Today, 30% to 50% of affluent South Africans’ portfolios are held abroad, and we’re witnessing a significant increase in clients seeking ways to externalise their wealth and hedge local risk without physically emigrating,” Razack said.

While offshore banking has traditionally been the preserve of the extremely wealthy in South Africa, it is increasingly being used by a broader cross-section of the country’s banking clients. 

Over the past decade, this offering has become increasingly available to relatively lower-income South Africans.

FNB’s offering is a case example of this, initially set up 50 years ago as an international trust and fiduciary service for wealthy South Africans. 

More recently, the bank has expanded its offering to include traditional transactional and savings accounts, which its South African clients can access. 

It revealed that now over 20% of FNB’s private banking client base actively uses its offshore service, with it aiming to deepen the penetration. 

Close to all of FNB customers engage in some cross-border money flow, representing a sizeable opportunity for the bank’s offshore operations.