Dear All

In an attempt to be one of the first to get the good news to you about the Budget I am setting out my thoughts in regard to Manuel's speech on Wednesday 15th February 2006.  Firstly he did not abolish Exchange Control as I had predicted, but increased the amount able to be invested Off-Shore from R750 000 to R2m.  Neither was this announcement made to 'thunderous applause' and thus I confess to being wrong on two counts!  However, factually it's probably the end of exchange control for individuals in that it means that a couple are able to invest without further ado up to R4m; and if they emigrate another R1m by way of personal assets and pay 10% on anything thereafter which would have been left behind. If there is no huge outpouring from this, which there won't be, the limit will be doubled next year and then as it becomes a non-issue, the controls will disappear completely.

I think that serious thought was given to abolishing Exchange Control and there must have been fascinating and furious behind the scene arguments with some saying 'be brave and just do it' and put the Rand into the real world and others saying 'do nothing' ( the boys from Big Bank probably) , but with the type of inflows that we've had in recent months i.e. Barclays and Vodafone, the Treasury no doubt drew comfort and concluded that Exchange Control was not a factor impeding  outsiders putting their money into South Africa. To be frank, it would also have been extremely awkward with the Amnesty process being only just completed, to so soon announce that in fact it wasn't really necessary anyway. The process just took much longer than anyone had anticipated with 42 672 successful applications having been made. R68.6 billion came to light as a result of the Amnesty and R2.9 billion came back to South Africa as levies. Not a bad tax bonanza.

From an Estate Financial Planning point of view there was much to cheer about in the budget.  Most importantly the deduction for Estate Duty has been raised from R1.5 to R2.5m.   Manuel explained that the figures have remained constant for many years and inflation needed to be taken account of.  In the same vein he increased the Donations Tax exemption from R30 to R50 000. Transfer Duty with effect from 1st March 2006 will only apply for purchases in excess of R500 000 up to R1m at the rate of 5% and thereafter at 8%. Transfer duty for Companies and Trust is reduced from 10% to 8%.  In view of my constant emphasis on Trusts as a primary estate planning tool, this is also good news.

In so far as Capital Gains Tax is concerned various increased deductions were made which I find quite interesting in that the Tax is still relatively new and not necessarily already experienced. I thought it was a wealth tax introduced for political reasons which would mean a very hesitant approach to increasing any allowances. It seems I was wrong again!  The general deduction is increased from R10 000 to R12 500 and from R50 to R60, 000 for an Estate. The Primary Residence deduction is increased from R1m to R1.5m. 

I find it interesting that Medical Expenses deduction can only start after having deducted 7.5% of ones taxable income, up from 5%.   This however only applies to those of us who are still under 65!  If you are over 65 your entire medical costs can be deducted.  The taxation thresholds will increased from R35 to R40 000 and for those over 65, to R65 000;  i.e. you don't have to pay tax unless you earn in excess of those figures.  At the same time the top marginal rate of 40% only starts at R400 000.  Interest able to be deducted is increased from R15 to R16 500 and for anyone over 65 from R22 to R24 500.  Foreign interest deductible was increased from R2 000 to R2 500.  The tax on Retirement Funds was reduced from 18% to 9%. Three cheers for Old Mutual.

All and all a fair and balanced budget from a Taxation and Estate Planning point of view.

Regards,