Answer: In the past, there were two taxpayers in your household and now there is only one. This will result in any additional income that you receive from your husband’s pension being added to your income, increasing your marginal tax rate.

I do not have enough information on your situation to give you a categorical answer on what you can do, but I will run through an approach that I would have followed.  

I would try to reduce your overall taxable income by as much as possible. This is difficult while you are receiving a salary, as your options to reduce your income will be limited. Once you retire, you will be able to choose a lower drawdown rate on your annuity and reduce your tax bill.

At this stage of your life, the only option open to you is to invest in a retirement annuity. You are allowed to contribute up to 27.5% of your taxable income to a retirement annuity. This amount will come off your taxable income.  

I will give you a simplified example below to help you understand how this could work:

Assume that you earn R300,000 a year and the  spouse’s pension that you receive comes to R200,000 a year.

• Before your husband passed away, your tax bill would have been R43,495.
• Now that you receive the additional spouse’s pension, your tax bill increases to R103,402.

You may invest 27.5% of the R500,000 income that you receive into a retirement annuity. This comes to R137,500.

• This investment will reduce your taxable income from R500,000 to R362,500. And your tax bill would drop to R60,214.

Your investment of R137,500 would give you an immediate saving in tax of R43,188. This is a very clever way of reducing your tax bill and improving your overall financial wellness.

Funding this can be a challenge. If you received a cash payout as part of your husband’s group life scheme, then you could use some of this to invest in retirement annuities until such time as you retire and have more control of your income flows.

I would, however, strongly recommend that you consult a financial planner who will be able to devise a solution for you that will result in you paying the least amount of income tax, while at the same time ensuring your current and future financial security. DM/BM

Kenny Meiring MBA CFP is an independent financial adviser.  

You can contact him on 082 856 0348 or at Financialwellnesscoach.co.za. Please send your questions to [email protected]

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.