2025 Budget Speech: Financial Planning Insights

South Africa’s Finance Minister delivered the long-awaited 2025 Budget Speech after an unprecedented postponement in February. The budget speech has unveiled several significant changes and proposals that will impact various sectors of the economy.

It is important to consider the broader implications for individuals, businesses, and the overall financial planning landscape as we examine these insights.

Collective Investment Schemes (CIS) taxation
Government has decided to revisit the taxation of collective investment schemes (CIS). A discussion paper on CIS taxation made three main proposals: making CIS fully tax transparent, providing a threshold for CIS, and removing hedge funds from the framework. It is encouraging to see that government acknowledges the administrative concerns raised with the fully tax-transparent proposal and it confirmed that it does not intend to tax all CIS returns as revenue. Government will continue consultations on this matter throughout 2025. These changes, if not implemented correctly, will have a detrimental effect on savings in South Africa.

Revenue from the Two-Pot Retirement System withdrawals: A double-edged sword
One of the standout revelations from the budget speech is the revenue generated from the Two-Pot withdrawals from retirement funds, which amounted to R11.6 billion, more than double the projected R5 billion. While this additional revenue counts as a positive for the South African government’s revenue, it raises concerns about the financial security of many South Africans once they reach retirement. The increased withdrawals suggest that individuals are tapping into their retirement savings prematurely and potentially jeopardising their future financial stability. This highlights why it is important for all South Africans to incorporate sound financial planning to ensure long-term financial security.

Reviewing asset-for-share and amalgamations transactions
The budget proposed a review of asset-for-share and amalgamations transactions involving CIS. Government is of the view that the current provisions have allowed for unintended tax avoidance during changes of shareholdings in listed companies. The proposed review aims to address these loopholes and ensure that realised gains are taxed appropriately and timeously during such transactions.

Cross-border tax treatment of retirement funds
The budget also addressed the cross-border tax treatment of retirement funds. National Treasury is looking to levy taxes on retirement fund moneys received from offshore retirement funds. This proposal aims to prevent double non-taxation, particularly in cases where South Africa is granted the taxing right by treaty. The proposed changes will ensure that lump sums, pensions, and annuities received by South African residents from foreign retirement funds for previous employment outside South Africa are taxed appropriately. This will be an important consideration for individuals with international retirement savings as they plan their finances.

Adjustment of transfer duty brings relief for homeowners
In a move to provide some relief to homeowners, government has adjusted the thresholds for transfer duty by 10%. This adjustment is part of the periodic reviews of monetary values in tax tables and aims to compensate for inflation. However, the transfer duty tax rates will remain unchanged. This measure is expected to ease the financial burden on homebuyers and stimulate activity in the real estate market. For individuals planning to purchase property, this adjustment could be a positive factor for them.

Unlocking institutional funding for infrastructure
To address the pressing need for infrastructure development, government intends to publish a consultation paper on unlocking institutional funding for infrastructure. The proposal includes enabling certain investment vehicles to facilitate these investments and offer a flow-through tax regime. This initiative aims to attract more institutional investors to fund critical infrastructure projects and boost economic growth and development. For financial planners, this presents new opportunities for clients looking to invest in infrastructure projects.

Reinstating the exemption for child maintenance payments
In a bid to align with social policy objectives, government has proposed reinstating the exemption for child maintenance payments funded from after-tax income. Currently, child maintenance payments are taxed in the hands of the recipient, despite being made using after-tax income. The proposed amendment seeks to exclude these payments from the recipient’s taxable income, which will restore the original policy intent and provide much-needed relief to families.

Clarifying payment of death benefits
The budget also addressed an anomaly in the treatment of death benefits from retirement funds. With the enactment of the Revenue Laws Second Amendment Act (2024), a lump sum payable as a result of the death of a member is still considered a retirement fund lump sum benefit. However, the definition of “savings component” only provided for the treatment of the remaining balance in the savings component on retirement, not on death. The proposed amendment will ensure that on the member’s death, any lump sum benefit chosen by the nominees or dependants will be considered part of the more favourable retirement fund lump sum benefit for Income Tax Act purposes. This clarification is crucial for estate planning and ensuring that beneficiaries receive the intended benefits.

Conclusion
The 2025 South African budget speech presents a mix of opportunities and challenges. While some measures provide relief and stimulate economic activity, others aim to tighten tax regulations and close loopholes. As these proposals move forward, it will be essential for stakeholders to stay informed and adapt to the evolving fiscal landscape. Effective financial planning will be key to navigating these changes and ensuring long-term financial stability.