Final chance for South Africans to pay less tax

With the tax season approaching, South Africans have a final opportunity to significantly reduce their tax bill and build long-term wealth.

As the February financial year-end approaches, Alexforbes financial adviser Zander Loots stressed that this period is crucial for South Africans.

This is because it marks the deadline for finalising all contributions, deductions, and tax-related decisions before the new tax year begins.

“These actions ultimately shape the tax return you’ll file in July when SARS officially opens tax season,” Loots explained.

He said that at this time of year, clients often ask how they can reduce their tax bill, which strategies they can still use before 29 February, and what opportunities SARS offers taxpayers to legally pay less.

There are two strategies, in particular, which constantly help individuals reduce their tax burden while building long-term wealth. The first strategy Loots highlighted was investing in a retirement annuity (RA).

“If you don’t belong to a company fund where you can make additional contributions, a retirement annuity remains one of the most effective tools for reducing taxable income before the tax year-end,” he said.

By investing in an RA, you can reduce your taxable income for the year. SARS allows you to deduct up to 27.5% of your taxable income, capped at R350,000 per year.

Additional benefits of an RA include tax-free investment growth, as no tax is levied on interest, dividends or capital gains within the RA, allowing savings to compound more efficiently over time.

Investors can also nominate beneficiaries, meaning the funds do not automatically form part of the estate, which can help reduce certain estate-related costs.

RAs generally offer protection from creditors, providing an added layer of financial security, particularly for professionals and business owners.

They are fully portable across employers, allowing individuals to continue contributing regardless of employment changes.

Contributions are also flexible. Investors can increase, reduce or pause payments depending on their financial circumstances, and may also make ad hoc lump-sum contributions rather than being limited to fixed monthly amounts.

In addition, RAs are designed to promote long-term financial discipline, as funds are generally inaccessible before the age of 55, except in limited circumstances, helping investors remain focused on their retirement objectives.

To illustrate the power of using an RA, Loots used an example of two people, both aged under 65, earning R1 million.

In this scenario, Person B contributed the full 27.5% allowance (R275,000) to their RA, reducing their taxable income to R725,000. Person A did not contribute to an RA.

From this example, where both individuals are under 65, the following findings emerged – person B saved R110,092 in tax, and their effective tax rate dropped from 29.2% to 25.1%. This can be seen in the table below.

	Person A	Person B
Taxable income	R1,000,000	R725,000
Tax before rebate	R309,518.59	R199,426.61
Rebate	R17,235	R17,235
Tax payable	R292,283.59	R182,191.61

Tax-free savings accounts

Another way South Africans can reduce their tax burden and build long-term wealth is by maximising their tax-free savings account (TFSA), Loots explained.

“A tax-free savings account offers unmatched long-term benefits – all interest, dividends and capital growth are completely tax-free,” he said.

Investors have a yearly contribution limit of R36,000 and a lifetime contribution limit of R500,000, Loots said.

“Unused TFSA allowances cannot be carried forward. If you don’t invest before 29 February, you lose the opportunity for that year permanently, and it takes you longer to get to the lifetime limit,” he said.

“TFSAs are ideal for long-term wealth due to their tax efficiency and flexibility, making them perfect for investors who want accessible, penalty-free savings with compounding growth over time.”

Unfortunately, Loots noted that many people only realise the need to contribute to an RA or TFSA late in January or even deep into February.

“While this is understandable, it often creates unnecessary pressure on both financial planners and investment institutions,” he said.

“Providers face a surge of last-minute instructions, and in some cases, processing times are delayed due to high volumes.”

Loots warned that this can result in contributions reflecting after 1 March, meaning they fall into the next tax year, and investors lose out on the deduction or TFSA allowance they intended to use.

“For this reason, it’s crucial to engage with your financial planner sooner rather than later to ensure the strategy, paperwork and contributions are finalised well before the deadline. You also benefit from compound interest for longer on the higher amount,” he said.

He stressed that February isn’t just a deadline, it’s an opportunity. Using an RA and TFSA thoughtfully allows taxpayers to –

• Reduce taxable income
• Increase potential tax refunds
• Grow long-term, tax-efficient wealth
• Strengthen retirement and financial security

“With the right planning, SARS effectively helps you save,” Loots added. “Use this window to your advantage.”