South Africa or more precisely Cape Town over the last few years has been growing in popularity as a desired retirement destination. The Cape Town region has around 400 000 -500 000 foreign pensioners with the UK leading the way with roughly 60%. This has helped inflate local property prices especially in the upmarket areas. This has bought $ billions of investment into the region with many of the more expensive properties being purchased by retiring foreigners.
The plusses is the cost of living in comparison to Europe or the States as the exchange rates are very favorable. The idea of living a comfortable retirement will make the pensions stretch that much further reducing any financial worries. Private medical is not expensive when converting currencies and is world class. There is no major language barriers with English the spoken language. The weather and climate is also very good and having so many other expat retirees around it has become a home from home for many.
This above sets the picture of what was a hassle free retirement for the 500K retirees living in the Cape up until yesterday the 12th September. Financially the Cape was a favorable destination as foreign pensions were exempt from taxation.
Back in 2000 the South African Treasury passed a bill making foreign pensions exempt from tax sating there were too many pitfalls taxing foreign pensions. At the time they stated that it could discourage investment when relocating and buying properties.
The problem is when you look at foreign pensions they cannot be compared to local pensions and local tax rules. Back in 2000 when this pension tax exemption was introduced the government said this would be reviewed and amended depending on the economic impact once studies had been done. No studies have been done and foreign pensioners will be taxed from March 1st 2026.
The 300K plus UK pensioners who had a double tax exemption with SA falls away and will be subject to a 45% tax rate. This is going to apply to everyone with a foreign pension and kind of changes things for those who have planned their retirement. Many are now looking to sell up and leave and this is going to impact the Cape economy. The housing market will be flooded with new homes for sale and no foreign buyers who would be normally snapping them up. Any investments in businesses will also be heading out the country so this is going to have a knock on effect and this government decision is reckless and very short sighted. One can imagine the impact of this region losing 500 000 consumers over the next few months.
This is billions of dollars in retirement capital that is now leaving South Africa and the impact is going to be very noticeable very quickly. Talk about chasing investors away when the country desperately needs investment. What the government has failed to understand is the knock on effect as property prices will drop so less taxes from house purchases. Property development will slow down due to less demand and thus jobs will be lost. This is madness all because the SA Government is desperate to increase their tax revenues and pensioners is an easy target. Little do they realize they are only going to reduce their revenue as all of these people were using local services and were paying vat on all goods.