The SDA (which lets eligible residents transfer offshore each calendar year without prior tax clearance from Sars) is R2m per individual: R4m for a couple, or R24m combined if both also use their full Foreign Investment Allowance. Deployed consistently, R4m a year builds a substantial estate quickly — and capital held in a properly structured offshore trust sits outside the South African estate for duty purposes.
The SDA resets on 1 January, not on the anniversary of using it: use it in February and you cannot top up in November — the new allocation only runs from 1 January. The removal of interest rate caps on inward foreign loans is also useful for groups whose offshore entities lend into South Africa — provided loans are market-related and reported.
The more significant change is that Sars — following the Reserve Bank's relaxation of exchange control — now permits South African resident trusts to distribute funds directly to offshore trusts. First signalled by Sars in August 2023 and increasingly used since, this route has moved from theory to mainstream planning tool.
Until now, getting capital into an offshore trust meant a clumsy workaround: the trust distributed to a resident individual beneficiary, who used their Foreign Investment Allowance to move the funds offshore, lending them to the offshore trust at market-related interest. The individual then paid income tax on that interest — often out of pocket, since the cash sat offshore — and because the funds passed through their hands, the assets fell back into their estate, exposed to estate duty.
That route is now unnecessary. South African trusts can distribute directly to a named offshore trust beneficiary, subject to a structured approval process.
The process runs through Sars, not the Reserve Bank. Trustees apply for a Manual Letter of Compliance; Sars verifies tax compliance, confirms all liabilities on the distribution are settled, and issues the letter — typically within several weeks for clean structures. That letter goes to the authorised dealer, who lodges the exchange control application with SARB. The trap is preparation: Sars’s review is a full audit, so a trust with outstanding returns or undeclared transactions will find it far longer. The window is open — but only for those who have kept their house in order.
A few things need to be in place before you apply:
The most common structure is a parallel arrangement: a South African trust holds local assets alongside a Mauritius trust. Mauritius works well — the double-tax agreement with South Africa is well-established, foreign-source income can be taxed at a very low effective rate for a properly structured trust, and the trust legislation is robust. Funding the Mauritius counterpart directly removes the estate duty exposure, the section 7C of the Income Tax Act 58 of 1962 (“the Act”) problem, and the pass-through burden. But it does not remove the tax on the distribution: since 1 March 2024, under the amended conduit principle, income vested in a non-resident beneficiary — which an offshore trust is — is taxed in the trust at 45% (36% for capital gains), so model the after-tax cost first.
Before proceeding with a trust-to-trust distribution, there is one income tax question that requires careful consideration and that the law has not yet definitively resolved.
Section 7(8) of the Act is an anti-avoidance provision aimed at residents who shift assets offshore to reduce tax; it can attribute income earned by an offshore trust back to the resident who caused it. Sars has indicated a trust distribution may trigger this — whether that is correct is an open question. But a trustee making a distribution acts under a legal obligation in the trust deed, not out of generosity, whereas section 7(8) targets voluntary, gratuitous arrangements to avoid tax. And once the offshore trust invests the capital itself, those activities — not the distribution — generate the income.
These questions will ultimately be resolved by Sars guidance or the courts. Because the trust-to-trust distribution route has only recently opened — and remains handled case by case, with no formal Reserve Bank circular — there is no settled authority on point. Where amounts are significant, trustees should take advice and consider applying to Sars for a Binding Private Ruling — a binding determination of how Sars will treat the transaction. It is neither quick nor cheap, but offers certainty general advice cannot.
The SDA is the easy win — use it consistently, and watch where the capital accumulates. The trust-to-trust route is more powerful but needs more work: trust deed, tax history, structure, and a clear-eyed view of the attribution question. Both are available; neither runs itself.
If you have an existing trust structure with offshore interests, are considering a trust-to-trust distribution, or wish to take advantage of the expanded individual allowances, we can assist with the exchange control, tax structuring, compliance and application process. Contact us:
Author name: Bashier Adam
Contact number: 012 682 8800
Email address: az.oc.tbas-aixen@reihsab
