If you are new to savings and investment and you do not already have a Tax-Free savings account, then this is probably something you should consider.

What does Tax-Free savings actually mean?

Tax-Free saving is a savings account where your money will be invested in financial products such as bonds and unit trust.

What makes the Tax-Free savings account so attractive is that you will never have to pay tax on the capital gains made from your savings, even when you withdraw your funds.

How exactly does this affect the amount of tax I pay?

It does not affect what tax you pay on your earnings, only that you will not pay tax on the money you earn from your Tax-Free savings account interest and capital gains.

How much of my income can I save in this way?

The amount you can save is as follows:

  • 2021 tax year is R 36 000 (R 33 000 for the 2020 tax year).  For that year. No amount can be carried over to the next year.
  • A lifetime limit of R 500 000 per person.

I want to open Tax-Free savings account for each of my children, how does that work?

You can do this but bear in mind that this will contribute to their “lifetime” limit for Tax-Free investment and not yours. And if you withdraw from these accounts, it will also impact your children negatively in that they will now have less capacity to save and benefit from Tax-Free savings.

Are there penalties for saving more than I am allowed to for the tax year?

Yes, the receiver will add a 40% penalty on the excess, here is the calculation.

The limit for the tax year 2021 is R36000 but you invest R 38 000. You will receive a penalty of R 800 (R 38 000 – R 36 000 = R 2 000 x 40%).

How do I declare my Tax-Free savings on my Tax Return?

The institution that is holding your Tax-Free savings account will issue you with an IT3(s) that will have all the details that you will need for your Tax Return.

Lifetime limits (Point 4) are increased from time to time, as are yearly contribution limits. When you do reach or are close to your limits then you may want to look at other options to save and get your money to make money for you. In future articles, I will be discussing Investment Trackers and why and how you should be investing your money there.


If you still have not got your TAX Returns in, then you could always take a look at this Online-Tax-Returns website where you can get it all done without ever setting foot in a SARS office and if you need some help and encouragement their very helpful bean-counters are always there to assist.


Until next time.

Richard from the MoneyShop Team


This article has been prepared for information purposes only and it does not constitute legal, financial, or medical advice. The publication, journalist, and companies or individuals providing commentary cannot be held liable in any way. Readers are advised to seek legal, financial, or medical advice where appropriate.