Question:
I earn and bank my income abroad and currently have about GBP40 000 saved. I have two residential properties — I rent one out while the other is my holiday home. One home is paid for whereas I still owe R330 000 on the other.

I am thinking of using the savings to settle the bond, but have been a little weary. What if things got worse in South Africa and I need to sell and emigrate?

Which would you suggest — pay off the bond or hold the savings abroad?

Answer:
On face value, if you have your Pounds in some sort of savings account you could be earning around 6.5 percent interest. Current bond rates in South Africa are around 15 percent, so paying off your bond would give you a better return on your money.

It would take you three to six months to sell your house. Your decision to emigrate would therefore have no bearing on whether the bond was settled or not because you would simply pay it off on the sale of your house.

On the other hand, it’s always a good idea to keep money offshore if for nothing else than the Rand hedge it provides.

If the bond is on the rental property then chances are the repayments are covered by the rent anyway, so you are not out of pocket. If you rent out your holiday home the same would apply.

If it was my decision I would sell the holiday home and settle the bond anyway as I hold the view that it is a ‘non-performing’ asset. Sure, you will get capital appreciation, but bond costs and maintenance may negate that. If you sell the holiday home you will have the best of both worlds; money offshore and no bond (and one less house to sell if you move). Of course, this all comes down to your own personal preference. I have no desire to own a holiday home as I like to explore different places while you, on the other hand, may be in love with your holiday home and plan to holiday there even if you do move overseas. You need to look at these issues and weigh up the pros and cons.

To be living in South Africa as a resident but earning money offshore requires some fancy footwork when it comes to tax. You also need to find out what your position is when it comes to exchange control.

If you sell here and emigrate then your funds would be subject to exchange control, so not moving your offshore funds (Pounds) would make sense.

I am not a tax expert and I think you would be well advised to seek help from a financial advisor who specialises in these issues.