If you have a few thousand rand to invest, and want to avoid paying more tax than is necessary, Derek Alton, head of client advisory at BoE Private Clients recommends preference shares. Preference shares pay out dividends, which is tax-free, instead of interest on your money, and if you choose the right company, are low risk.

Unlike some bank products, preference shares also offer liquidity.

Returns can better bank rates

Preference shares generally offer between 65 and 70 percent of the prime interest rate, but because it’s not taxable the return can better a bank interest rate, which is taxable. The value of the share will vary, and the more stable the company the lower the risk involved — and generally, the lower the return.

Preference shares are not likely to show large capital growth, but are attractive for the income stream they provide. Holders of preference shares take precedence over other shareholders for dividend payments.

Listed preference shares can be bought from a broker and can be bought or sold as you wish, although you will incur brokerage fees.

Unlisted preference shares are also available, and may be offered to you when banks try to match the needs of their clients who have money to invest with corporate clients who need to borrow. The attractiveness of these shares depends on what you’re taking on, says Alton, and sometimes banks guarantee these shares, although the trade-off can be a lower return.


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