Tax is one of the biggest costs investors overlook.
Two investors can earn the same investment return and end up with very different amounts of wealth simply because their investments are structured differently.
The objective is not to avoid tax. It is to use the tax rules that SARS has deliberately made available to investors.
For South Africans, the 2026/27 tax year provides several important opportunities. The annual Tax-Free Savings Account contribution limit has increased to R46,000, the retirement-fund deduction ceiling has increased to R430,000, and the annual capital-gains exclusion has increased to R50,000.
For professionals, business owners and investors building wealth over decades, these allowances can make a meaningful difference to the amount of capital that remains invested and compounding.
Here are five legitimate ways to improve the tax efficiency of your investments.
Why tax efficiency matters in 2026
Households face a tight backdrop: inflation measured about 5.0% in June 2026 and has eased to roughly 4.3%, while the repo rate sits near 10.5%.
Global trends favour low‑cost platforms, diversified portfolios and automation. South Africans can combine those trends with local tax rules to keep more of every rand working.
1. Maximise Tax‑Free Savings Accounts
Tax‑Free Savings Accounts allow contributions of up to R46,000 per tax year, capped at R500,000 over a lifetime. Growth inside a TFSA—interest, dividends and capital gains—is never taxed, and withdrawals are free of tax too.
Contributions are not tax‑deductible, but all returns are tax‑free forever.
Use low‑cost platforms with minimums from about R500 to access ETFs or shares.
Avoid withdrawals: any amount you take out still counts toward the lifetime R500,000 limit.
Prioritise broad, low‑turnover ETFs for long‑term compounding.
How much can you contribute annually to leverage this tax‑free growth?
2. Contribute to Retirement Annuities
Retirement annuities allow tax‑deductible contributions up to 27.5% of taxable income, capped at R430,000 per year across all retirement funds. Investment growth inside an RA is tax‑free, and up to R500,000 of retirement lump sums can be tax‑free, subject to the retirement lump‑sum tax table. Excess contributions roll over to future years.
Example: if your taxable income is R500,000 and you contribute R50,000, you’re taxed on R450,000. At a 45% marginal rate, that saves up to R22,500 in the current year.
Bonus boosters
Automate contributions before 29 February to capture the full deduction within the tax year.
Use salary sacrifice via payroll to reduce monthly PAYE and boost cash flow.
Coordinate with employer pension or provident funds; the 27.5% cap applies to the total across all funds.
On job changes, use preservation funds to maintain the tax shelter instead of cashing out.
Are you maximising RA contributions?
3. Use interest and capital gains exemptions
Local interest for individuals under 65 has an annual exemption of R23,800 (R34,500 if 65 or older). Capital gains enjoy a R50,000 annual exclusion, with 40% of gains above that included in taxable income. At a 45% marginal rate, the maximum effective CGT rate is 18%.
Phase disposals over tax years to use the annual R50,000 CGT exclusion.
Harvest losses thoughtfully to offset gains, while staying within SARS rules.
Favour low‑turnover, low‑cost funds to reduce realised gains and trading costs.
Keep interest‑heavy instruments in RAs or TFSAs to shelter income from tax.
How can you structure investments to use these exemptions?
How is CGT calculated in South Africa?
4. Diversify with tax‑efficient assets
Diversification across equities, bonds, REITs, private markets and alternatives can improve after‑tax returns. Dividends from South African companies face a 20% dividends tax deducted at source. Foreign dividends may qualify for a 25/45 exemption when you hold less than 10% of a foreign company, reducing the effective tax rate.
The question is not only what should you invest in? It is also where should you hold it?
An interest-heavy investment may produce a very different after-tax outcome when held personally compared with holding it inside an appropriate retirement or tax-free structure. Similarly, high-growth investments can have different tax consequences depending on whether returns arise as interest, dividends or capital gains.
Which asset classes suit your risk profile?
Tip: Combining low‑cost building blocks with smart asset location can cut your lifetime tax bill without adding risk.
5. Claim medical and donation tax relief
Medical scheme fees earn monthly tax credits—for example, about R376 for the main member and first dependant, with an additional monthly credit of R254 per further dependant. Qualifying out‑of‑pocket medical expenses may also earn credits, subject to SARS formulas.
Donations to approved Public Benefit Organisations (PBOs) are deductible up to 10% of taxable income when you obtain a Section 18A receipt.
Keep all medical and donation records and claims ready for your ITR12.
Verify the PBO’s approval status on the SARS list before donating.
Bundle elective procedures or donations within a tax year to optimise relief.
What deductible expenses can you claim this year?
Getting started and staying compliant
Map your plan, automate contributions, and review fees. Low‑cost platforms and diversified portfolios align with global best practice while helping you reduce tax on investments in South Africa.
Consult a licensed adviser or tax professional via info@ffreedom.co.za to tailor these strategies.
Declare all income and deductions accurately to SARS and keep proofs like IT3(b) and dividend or interest certificates.
Rebalance annually, aiming to use TFSA allowances first, then RA deductions, then exemptions.
Track fiscal drag and adjust contributions as your income changes.
By combining TFSAs, RAs, exemptions, asset location and eligible deductions, you can legally lower your tax burden and strengthen long‑term wealth—without taking on unnecessary risk. Review your financial plan before investing.
Resources
https://www.treasury.gov.za/documents/national%20budget/2026/PeoplesGuide