What’s new?
25 February 2026 – As announced in today National Budget speech, there is an increase in the Tax Free Saving Contributions limit from R36 000 to R46 000 per annum with effect from 1 March 2026.
What is it?
Tax Free Investments were introduced as an incentive to encourage household savings. This incentive has been available since 1 March 2015. Tax Free Investments are approved account types and investment vehicles offered by authorised financial service providers and recognised by SARS. Amounts earned in these accounts are free from income tax, dividends tax, and capital gains tax.
How will it work?
The tax free investments may only be provided by, for example, a licensed bank, a long-term insurer, a manager of a registered collective scheme (with certain exceptions), the National Government, a mutual bank, a co-operative bank, the South African Postbank, an administrative financial services provider and a person authorised by a licensed exchange to perform one or more securities services in terms of the exchange rules.
Overview
- You don’t have to pay income tax, dividends tax or capital gains tax on the returns from these investments.
- A person is limited to an investment with an annual limit (R46 000 with effect from 1 March 2026) as well as a lifetime limit (R500 000). See examples below.
- The annual limits for the 2016 and 2017 years of assessment amounted to R30 000. For the 2018 to 2020 years of assessment, these were increased to R33 000. For the 2021 to 2026 year of assessment, the annual limit amounted to R36 000. With effect from the 2027 year of assessment, the annual limit is R46 000.
- Note that any portion of unused annual limit is forfeited (that is, it is not carried forward to the subsequent year of assessment).
- There is also a lifetime limit of R500 000 per person. This means that the total investments can never exceed R500 000 per person.
- There is a “penalty” (in the form of normal tax payable) of 40% on the excess amount above the annual and the lifetime limits.
Example 1:
- 2026 Year of Assessment
- Annual limit is R36 000
- Taxpayer X invested R34 000.
- The unused portion of R2 000 is NOT rolled-over to the subsequent year of assessment
Example 2:
- 2027 Year of Assessment
- Annual limit is R46 000
- The taxpayer invested R50 000
- There will be a “penalty” (in the form of normal tax payable) of 40% on the excess amount above R46 000
- Therefore, R50 000 less R46 000 = R4 000 x 40% = R1 600 penalty will be payable to SARS.
- This penalty is added to the normal tax payable on the notice of assessment.
- Any person (including minor children) can have more than one tax free investment, however, the annual limitation is an aggregation per every year of assessment. For example, for the 2026 year of assessment, you can invest R11 000 (Investment 1), R11 000 (Investment 2) and R14 000 (Investment 3) for a total of R36 000.
Illustration of the lifetime limit of R500 000 per person
Year of assessment | Invested | Accumulated lifetime limit |
2016 | 30 000 | 30 000 |
2017 | 30 000 | 60 000 |
2018 | 33 000 | 93 000 |
2019 | 33 000 | 126 000 |
2020 | 33 000 | 159 000 |
2021 | 36 000 | 195 000 |
2022 | 36 000 | 231 000 |
2023 | 36 000 | 267 000 |
2024 | 36 000 | 303 000 |
2025 | 36 000 | 339 000 |
2026 | 36 000 | 375 000 |
2027 | 46 000 | 421 000 |
2028 | 46 000 | 467 000 |
2029 | 33 000 | 500 000 * Note 1 |
Total | 500 000 | |
*Note 1: Limited to the lifetime limit of R500 000. If the person exceeds the R500 000 lifetime limit, a penalty of 40% on the excess would apply. The person should therefore only invest R33 000 in the 2029 year of assessment to avoid exceeding the R500 000 lifetime limit | |
- Note that when returns on investment are added to the capital contributed, the balance may exceed both the annual and/or lifetime limit. The capitalisation of these returns within the account does not affect the annual or lifetime limit.
- Example: if a person invested R36 000 for the 2026 year of assessment and the return on investment is interest of R5 000, which is capitalised, the total amount in the account will be R41 000. The interest amount of R5 000 is not regarded as a contribution.
- This must be contrasted with situations where a person withdraws the return on investment (as per above example R5 000) and then invests that amount in the same tax free investment account. That subsequent investment will be regarded as a new contribution and will accordingly impact on both the annual and lifetime limits. The same principle will apply if any portion of the capital is withdrawn and reinvested in the same tax free investment account or any other tax free investment.
- Transfers between tax free investments accounts are effective from 1 March 2018. Parents can invest on behalf of their minor child. The minor child will use his/her own annual or lifetime limits.
- Tax free investment accounts cannot be used as transactional accounts.
- Debit or stop orders and ATM transactions will not be possible from these accounts.
Examples of some accounts that can qualify as Tax Free Investment Accounts:
- Fixed deposits
- Unit trusts (collective investment schemes)
- Certain endowment policies issued by long-term insurers
- Linked investment products
- Exchange traded funds (ETFs) that are classified as collective investment schemes.
What must I do next?
SARS does not administer any tax free investments, but monitors, amongst other things, the tax legislation applicable thereto, as well as the annual and lifetime limits, and any potential penalties where the limits are exceeded. Should you wish to partake in a tax free investment, you must enquire from a relevant service provider that deals with tax free investments.
Service providers will provide SARS, twice a year, with, amongst others, the following info:
- Total contributions per year of assessment;
- Total amounts withdrawn per year of assessment;
- Total amounts transferred per year of assessment;
- Total returns on investment for example: interest, dividends, capital losses and capital gains.
The service providers will provide these taxpayers with this information by issuing an IT3(s) Tax Free Investment certificate annually.
