Insurance wrapper — a tax-efficient way to bequeath offshore assets

Insurance wrapper — a tax-efficient way to bequeath offshore assets

Putting your offshore assets into an insurance wrapper has the twin benefits of reducing your tax liability and making inheriting easier.

Question: A few months ago, you talked about using offshore insurance wrappers to save on inheritance tax. We have some money overseas, from which we occasionally draw to supplement our South African income.

If we put some of this money into an insurance wrapper, would that mean that the South African tax authorities would not be able to tax this, as our heirs are all overseas?

Answer: In South Africa, you are taxed on your worldwide assets. So, when you die, the asset will trigger capital gains tax and estate duty, regardless of whether you hold them in your own name or in a wrapper.

The location of the heirs will not affect this tax either. However, having the investment in a wrapper will have an impact on the amount of tax that is payable.

What is a wrapper?

A wrapper is an insurance structure like an endowment policy or sinking fund where you can hold your assets. It is a very useful instrument for offshore investments as it can do the following:

  • Reduce your tax liability; and
  • Make inheriting easier.

Tax benefits

As the investment is in a wrapper, it will be deemed to be part of your South African estate. You will therefore not have to pay situs tax on the investment. Situs taxes like inheritance tax are typically about 40%.


A wrapper allows you to attach a beneficiary to the investment. This means that your heirs will not have to wait until the estate has been wound up before they can gain access to it. The investment can be transferred to them immediately. This is a major benefit as estates are taking a particularly long time to be finalised in South Africa.

Having the investment in a structure also removes the need for your executor to have to apply for a grant of probate, which is often needed to give your executor the authority to dispose of an offshore asset. This grant of probate usually adds an unnecessary layer of costs and time.

Insider tip

When you set up your investment wrappers, I would recommend that you set them up in such a way that you can have separate investments for each child. Some companies allow you to split the investments upon death, while others require you to set up separate investments at the start. Your financial adviser can advise you on options.

If you keep your funds in a sinking fund, and the ownership of the sinking fund is just changed upon death, there will be no capital gains tax triggered upon death. This is a great way to build up offshore family wealth.

Once your children receive their inheritance, they may have to contend with inheritance laws in the country in which they live. As your children are overseas, it is important that they understand the inheritance tax laws in that country.

All countries have different rules when it comes to inheritances and it is important that, when your children inherit, they receive the inheritance in the most tax-efficient form. This could mean a cash payout or taking ownership of the investment.

As you can see, planning ahead can ensure that your offshore investments will be passed on to your children quickly and with the least amount of leakage in the form of taxes and fees. DM

Kenny Meiring is an independent financial adviser. Send your questions to [email protected].

This article first appeared in our weekly Daily Maverick newspaper, DM168, which is available countrywide for R35.


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