OMI Comparison - Direct share portfolio outside wrapper vs inside the wrapper
Non-Wrapper Direct Share Portfolio:
OMI IP+ Wrapper with Custody Account
Tax is applied at the rates applicable to the owner of the assets. Marginal rate of tax would apply. Therefore a typical high net worth investor could pay up to 45% income tax (i.e. interest income / bond yields) and up to 18% CGT in hard currency terms. An auditor/ accountant/ tax practitioner may be employed to process this annually upon trades. Obligation to report is upon client.
For individuals, and trusts with only natural beneficiaries, Income Tax is applied at 30% and Capital Gains tax at 12% in HARD CURRENCY. Tax is paid within the product on behalf of the owner and as such withdrawals free of tax. No obligation for client to report upon taxes. All proceeds from OMIM policies are therefore free of tax in the hands of South African resident taxpayers. An added benefit is that no interest/dividend or capital gains tax calculations need to be made by clients.
WHT on US Shares
US Tax on Dividends at 30%
US Tax on Dividends 15% net off at 20%
Beneficiary Nomination: No will required.
Probate is a process whereby a will is accepted by a court as a legal document. There are certain offshore jurisdictions which cannot be governed through a local will. In these instances, very often the local estate is delayed whilst the will is sent offshore – this can cause unnecessary delay and cost.
Beneficiary Nomination: No probate when beneficiaries are nominated. Beneficiaries have immediate access to capital.
Assets held in certain foreign jurisdictions, most notably the UK and the US may be subject to inheritance tax under the law of situs. In the US this results in tax at 40% for asset bases in the US of over $60 000 and in the UK tax at 40% for asset bases in the UK of over £325 000.
Assets held in wrapper are not subject to such considerations. Normal South African estate duty will however apply at 20% to 25% tax on asset bases exceeding R3 500 000. The OMI IP+ Wrapper forms property in one's estate. Beneficiaries once again have immediate access to capital. Bequests between spouses are deductable (Sect 4q).
Inheritance Taxes may apply in Europe well as other jurisdictions a typical share portfolio may have exposure to.
Assets held in wrapper are not subject to such considerations. Normal South African estate duty will however apply at 20% to 25% tax on asset bases exceeding R3 500 000. The OMI IP+ Wrapper forms property in one's estate. Beneficiaries once again have immediate access to capital.
CGT at death:
CGT may apply on offshore stocks/ securities held.
Par 55 of Capital Gains Tax Act. No CGT on IP+ upon death.
Assets may or may not need to be sold on death. Typically one cannot make place trades as assets are frozen.
The IP+ Wrapper is a sinking fund and allows for Beneficiary for ownership. This allows for ensured continuity. Where continuation is possible the asset
Death - Executors Fees:
Assets form part of the estate and are subject to Executor fees. Local SA Executors can charge up to 4.02% on the assets.
Assets deemed to be part of the estate but are not subject to Executor fees where beneficiaries are nominated. N/A
Offshore Solicitor/ Attorney Fees:
A local SA Executor is unable to wind up an offshore estate. A solicitor or attorney must be appointed and will begin the process of probate. Fees apply. The average fees incurred here are 6% on the NAV of relevant estate.
No subject to probate or offshore solicitor/ attorney fees. N/A
Assets are liquid to the extent of the terms of underlying asset. These days most unit trust have daily pricing and therefore daily liquidity, and most stock exchanges trade on a T+3 basis.
The assets in the wrapper are liquid to the extent of the terms of underlying asset. These days most unit trust have daily pricing and therefore daily liquidity, and most stock exchanges trade on a T+3 basis. The aforesaid caters for easy switching. Liquidity (withdrawals) within the first five years is limited to the net capital invested plus 5% simple growth per annum. The IP+ creates multiple underlying contracts allowing multiple access within the first 5 years.
The existing underlying investment cost for management of securities and stocks, brokerage and custody will apply.
The existing underlying investment cost will apply. An IP+ wrapper cost will apply. The charge works on a "hurdle rate".
Underlying Custodian Reporting
Underlying Custodian Reporting as well as Quarterly Statements from OMI available online through IMS.
Limited to Custodian Offering
Unlimited - Client/ advisor can switch between up to 30 different underlying custodians as well as hold a mix of funds in combination to the custodian account.
Consolidation of Assets:
Different custodian accounts as well as funds can be housed in the IP+ wrapper. Combined assets will reduce the IP+ wrapper charge and mitigate outside risk of offshore assets not housed in the wrapper.
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