Best news in years for South Africans who have left the country

The 2026 Budget brought rare relief for expatriate taxpayers by introducing no new taxes or compliance burdens, while slightly improving flexibility. But there is one pitfall they must be careful of.

Tax Consulting SA’s Team Lead of Cross-Border Taxation, John-Paul Fraser, explained that, for the first time in many years, the 2026 Budget imposed no new tax burdens on non-resident expatriates.

The Budget focused mainly on restoring inflationary adjustments for South African tax residents, while maintaining stability and predictability for those who have formally ceased local tax residency.

However, the Budget also brought several changes that remain relevant for individuals who have already ceased South African tax residency or are planning to do so, Fraser said.

“A notable feature of Budget 2026 is what it does not do – no new taxes, anti-avoidance rules, or compliance obligations are introduced for South African non-tax residents – outside of one targeted measure dealing with spousal donations,” he said.

“This will come as welcome news for expatriates who are often monitoring changes to capital gains tax (CGT), foreign income rules, offshore investment reporting, or exit tax provisions.”

Fraser said the Budget brought reassuring clarity by making no proposals to amend or remove the long‑standing foreign pension exemption under section 10(1)(gC)(ii).

In November 2025, the National Treasury withdrew its highly contested proposal to remove the tax exemption for foreign pensions for South African tax residents.

It instead elected to follow a more consultative process for any future recommendations. “For now, this continuity offers valuable peace of mind for expatriates and globally mobile South Africans,” Fraser said.

“It also reinforces confidence in South Africa’s commitment to balanced, consultative tax reform rather than abrupt changes that could unsettle long‑term financial planning.”

Inflationary adjustments and tax-free savings

Fraser explained that in the 2026 Budget, the Treasury applied full inflationary increases of approximately 3.4% to personal income tax brackets and medical scheme tax credits (R376 for the first two members, and R254 for others).

“These adjustments substantially benefit South African tax residents. However, for non-tax resident expatriates, these updates generally have no direct impact,” he said.

Expats will only benefit if they still earn South African‑sourced income subject to the Pay As You Earn system, or they contribute to a local medical scheme and claim deductible expenditure via a return, which is increasingly uncommon.

The Treasury also increased the annual CGT exclusion from R40,000 to R50,000 for the 2026 year of assessment.

This applies to expats who still hold South African assets, or are in the process of ceasing residency and triggering exit tax under section 9H of the Income Tax Act.

For non-residents, this exclusion applies primarily to capital gains on immovable property, and residual deferred gains arising from prior exit tax events, where applicable.

Another change announced in the Budget was the increase in the annual contribution limit for tax-free savings accounts (TFSAs) from R36,000 to R46,000.

Fraser said this is largely irrelevant for non-residents because TFSA contributions cannot be made by non-residents.

Additionally, growth within TFSAs remains fully taxable in the new country of residence unless that country specifically exempts it.

“Expatriates holding pre-existing TFSAs should note that no South African tax arises on ongoing growth, but they cannot add new contributions after ceasing residency,” he added.

One major pitfall for expats

The 2026 Budget also increased the annual retirement deduction ceiling from R350,000 to R430,000. While this is mostly aimed at residents, Fraser said it may be relevant for:

• Expatriates who remain members of South African retirement funds and plan to continue contributing during the year of exit
• Individuals emigrating in 2026, who may use the higher cap as part of their pre‑exit planning strategy

“Notably, non-tax residents cannot deduct contributions because they no longer file South African tax returns, unless South African-sourced income thresholds necessitate a return,” Fraser explained.

Another change brought about by the Budget was that, from 2026, individuals may transfer up to R2 million per calendar year out of South Africa without needing a tax compliance status PIN or any proof of tax residency.

According to Fraser, the Treasury’s doubling of the single discretionary allowance is one of the most practically beneficial changes for expatriate tax residents.

This simplifies offshore remittances, family support payments, settlement of foreign expenses, and transfers to personal offshore investment portfolios.

For those embarking on the process to become non-tax residents, this increases the annual flexibility to transfer their South African funds offshore before their relocation and cessation of tax residency.

Fraser explained that the 2026 Budget had only one targeted measure affecting expatriates, namely the restriction of the spousal donation exemption.

The government has officially closed a loophole where some couples structured their tax residency cessation to reduce exit tax exposure.

Expats did this by having one spouse become a non-tax resident first, while the remaining spouse transfers assets tax‑free to that spouse under the spousal donations exemption.

“In doing so, this allows the remaining spouse to emigrate with a significantly reduced asset base,” Fraser said.

“From 25 February 2026, the spousal donations exemption applies only when the recipient spouse is a South African tax resident.”

For expatriates, the exemption no longer applies if the receiving spouse is a non-tax resident, and any donation will now be subject to 20% or 25% donations tax.

“This is a significant change for mobility planning, family structuring, and pre-emigration arrangements,” he cautioned.

Overall, Fraser said the 2026 Budget can be summarised for expatriates as, “Calm waters – with one important reef to avoid.”

For non-tax residents, there are no new taxes, no additional reporting requirements, no increase in the exit tax, and no amendments to the foreign employment income rules.

The Budget also improved remittance flexibility for planning a transfer of funds before ceasing tax residency and slightly increased CGT thresholds.

The only noteworthy cautionary development is the restriction on the spousal donations exemption, which may require restructuring for couples planning emigration or wealth transfers.