New tax rule for retirees in South Africa

South African retirees with multiple living annuities could face tighter rules under proposed tax changes that would prevent them from applying the ‘de minimis’ threshold separately to each annuity.

The 2026 Draft Taxation Laws Amendment Bill proposes that the de minimis threshold for living annuities be assessed against the aggregate value of all living annuities held with the same insurer or fund.

Tax Consulting South Africa’s Team Lead of Expatriate Tax, John-Paul Fraser, and Head of Tax Controversy & Dispute Resolution, André Daniels, told Daily Investor that retirees should start preparing.

The change is aimed at addressing cases where retirees hold multiple small annuities and use the threshold to commute each one separately.

The de minimis threshold allows an annuitant whose living annuity balance falls below a specified amount to commute the entire capital value as a lump sum, rather than continuing to draw an income.

Simply put, if the total amount left in your living annuity drops below a certain limit, you are allowed to cash out all of the remaining money at once as a single lump sum, instead of having to keep taking small regular payments.

The de minimis threshold was introduced to avoid the administrative burden of maintaining small annuities that produce negligible income.

However, some annuitants who hold multiple living annuities with the same insurer or fund have been applying the de minimis threshold to each annuity individually.

This means an annuitant could, for example, hold five living annuities each worth R100,000 with the same insurer and commute all five.

This would allow them to access R500,000 as a lump sum when the policy intent was that only small residual balances qualify.

The proposed amendment means the de minimis threshold will instead be assessed against the aggregate value of all living annuities held with the same insurer or fund.

An annuitant with five annuities worth R100,000 each, totalling R500,000 with the same insurer, will therefore no longer qualify for full commutation if the cumulative balance exceeds the prescribed limit.

Fraser and Daniels explained that retirees with multiple living annuities should review their positions. “Annuitants should conduct an immediate audit of all living annuities held with the same insurer or fund,” they said.

“If the cumulative value exceeds the prescribed de minimis threshold, the option to commute will no longer be available once the amendment is enacted.”

However, the proposal is still in draft form. Retirees should therefore consider whether planned commutations could be affected by the proposed aggregation rule and seek advice where appropriate.

Consideration should be given to both the eventual commencement date and any changes that may arise during the legislative process before implementation.

South Africa’s tax landscape is changing

The proposed change forms part of a wider shift in South Africa’s tax landscape towards tighter compliance and greater scrutiny of arrangements that could undermine the tax base.

Fraser and Daniels said the change reflects the taxman’s growing sophistication in identifying unconstructive patterns.

“The two-pot system and the de minimis threshold were progressive reforms, but SARS has moved quickly to close the ‘multiple annuity’ arbitrage before it became entrenched,” they said.

They added that this is consistent with the tax authority’s stated objective of making non-compliance “hard and costly”.

The change is particularly relevant to retirees who have accumulated several living annuities with the same insurer or fund.

Financial advisers and retirement fund administrators will also need to update their systems to apply the cumulative de minimis rule per insurer or fund.

The proposed amendment is likely to require retirees to take a closer look at their retirement structures before deciding whether to withdraw or commute smaller annuities.