Second Ashra – Days Of Forgiveness

Forgiveness is to do Astaghfaar for all sins committed so far by Muslims especially in the second Ashra of Ramadan and to repent unto Allah. Do Astaghfaar, feel sorry, desist from committing it again, and make sure not to fall for the same sin again.Dua for the second Ashra is:

Translation:  “I seek forgiveness from Allah, my Lord, from every sin I committed”

–    Days Of Maghfirah

These are the days of Maghfirah and in the mid of Ramadan Allah’s forgiveness is at peak. He forgives only those who prostrate in front of Him with ashamed spirit and pledge in heart not to do the same again ever. Do Tauba as Allah loves those who repent on their sins, verily He is the only forgiver.

–    Be Kind – Forgive All

While you are asking for Allah’s forgiveness in this Ashra make sure that you do the same to our fellow Muslims by adopting alike trait of your Lord and let forgive them for all their deliberate mistakes.

Faq pertaining to Zakaat

Zakah is Fardh (compulsory) upon every sane adult Muslim (male and female) who possesses net-Zakatable assets (i.e. Zakatable assets over and above one’s basic needs minus liabilities) to the value of Nisab (minimum threshold) for one’s Zakatable (lunar) year.

Zakatable Assets:

1. Gold and Silver: All forms of gold and silver, jewellery that contain 50% or more gold and silver content, gold and silver coins (e.g. Kruger coin), gold and silver ornaments, utensils, etc. Zakah is compulsory on these items whether these are in use  or not.

2. Cash: Petty cash, float, cash on hand, cash at the bank, foreign currency, saved income from rental/property investments, dividends from investments, lump sum payouts, etc.    

3. Stock in Trade: Stock, raw materials, redundant stock, assets purchased with the intention of resale. (The market-rated value of the stock will be considered.)

4. Receivables: Debtors, loans, deposits (municipal, rental), insurance, voluntary pension/provident funds, retirement annuities, etc.                       

5. Shares/Unit Trusts/Partnership: The net Zakatable assets of the company/fund/ partnership will be considered and Zakah is payable pro rata of one’s investment/ shareholding. However, calculating one’s Zakah of the listed company share or unit trust maybe cumbersome. Therefore, one may pay Zakah on the full market value of the investment.         

The Zakatable rate for all the above-mentioned assets is 2.5%

6. Livestock: Livestock such as: goats, sheep, cows, bulls and camels for breeding purposes. The local Ulama should be consulted with regard to what amount of Zakah is due on them. Livestock for trade purposes is treated as stock in trade.                                                                

Non-Zakatable Assets:

1. Metals other than gold and silver such as platinum, titanium, etc.

2. Property, Land and Building

3. Household effects, fixtures and fittings

4. Motor vehicles

5. Personal effects (that are not gold/silver)

6. Diamonds, pearls and other precious or semi

precious stones

N.B. If any of the above assets are purchased for resale then these shall be regarded as stock in trade and calculated as Zakatable assets.

Nisab and Rate of Zakah

The minimum amount of Zakatable wealth (threshold) which makes one liable for Zakah is called Nisab.

The Nisab of gold is 87.48 grams and silver is 612.36 grams. Hence, if a person only owns gold which is less than 87.48 grams then Zakah is not compulsory since he is below the threshold of Zakah. Similarly, if a person only owns silver which is less than 612.36 grams then Zakah is not compulsory.

However, if a person owns any Zakatable asset together with gold or silver then the applicable Nisab would be the value of 612.36 grams of  silver.

The equivalent Rand value of this fluctuates daily. This may be obtained from your local Ulama body.

Debts and Liabilities

The classical juristic texts state that all debts are regarded as deductible liabilities of Zakah. However, some contemporary jurists differentiate between the types of debts, e.g. debts which are for commercial expansion or investment purposes and personal debts that are basic, whilst others do so based on the term of repayments of short term and long term debts.

Darul Ihsan is of the view that in long term loans, only the next twelve months instalments due will be considered a liability and deductible.

The Zakatable Year:

1. The Zakah year is based on the Hijri (lunar) calendar and not on the Gregorian (solar) calendar.

2. The very first day a person possesses wealth equivalent to the value of Nisab heralds the beginning of his/her Zakatable year.

3. Should Nisab enter one’s  possession and remain with oneself for the entire lunar year, then one will be liable to pay Zakah, irrespective of the fluctuations during the year provided the net-value had not reached zero.

Hence, at the year-end Zakah is paid on the entire value of the net Zakatable assets in one’s possession – though some assets may not be literally in one’s possession for the entire year including all assets and amounts acquired during the year.

If at any point during the year, the net-value of Zakatable assets reached zero or a person had more debts than Zakatable assets, the Zakatable year will change. The new Zakah year commences upon regaining the equivalent of Nisab.

Decrease in Wealth

If Zakatable assets are destroyed (without one’s own doing), Zakah will only be paid on the remainder if a person’s wealth gets destroyed after the year-end. However, if one destroyed the wealth deliberately or used up the wealth, Zakah will be payable in full.

Discharging of Zakah:

1. It is necessary for the validity of discharging Zakah to have the intention of discharging Zakah.

2. This can be done in several ways: – intention is made when handing over Zakah to the recipient – or intention is made at the time of separating and setting aside money for discharging Zakat, – or the intention can be made after giving the wealth away, whilst the Zakat is still in the possession of the recipient, not after that.

3. The condition for the validity of the discharge of Zakah is “Tamleek” – where ownership and possession of the wealth is transferred to the deserving recipient. Hence, Zakah cannot be given or used for the construction of a Masjid, Islamic institute, etc. nor can Zakah funds be used to prepare meals for the poor without giving them unconditional possession over the food.                                                                    

4. Zakah can be paid in cash or kind. Hence, one can discharge goods and consumable items as Zakah.                                                                       

5. Authority can be delegated to another person or an organisation to distribute Zakah on one’s behalf. However, if this representative does not distribute the Zakah, or distributes it incorrectly then one’s Zakah will not be discharged, and will still remain an obligation until it is fulfilled.

6. Zakah may be discharged gratuitously by another person provided this is done with the consent of the one who is obligated to do so. Hence, if the husband wants to discharge the Zakah of the wife gratuitously then he may do so with her consent.

Similarly another person may be requested to pay certain amount as Zakah on one’s behalf. If this is undertaken then the amount given will then be a debt upon one and will have to be repaid.  

7. Zakah can be paid in advance. One must, however, calculate Zakah at the end of the Zakah year to determine whether there was any shortfall or not, and if so make good the outstanding amount.

The rules and laws of Zakah are detailed. This brochure merely serves as a brief overview of the basic laws. Please refer to your local Alim/Mufti for further guidance.

10 tips to see the best of Ramadan

AW Top Header

Ramadan is awaited with much anticipation – a special guest that visits us annually. To ensure that we are prepared for our visitor the following is a ten-point check list that we should try to uphold to see the best of Ramadan.

 

  1. Do with the heart – There should be no ulterior motive in welcoming our guest. Become cognisant of the actions of the heart. Do everything with a clear intention and purpose. Trying to earn recognition from people and is not what good acts are for. Do for Allah Ta’ala alone.

 

  1. Month to incinerate sins – To sin in Ramadan is like discarding the guest. Ramadan is here to scorch and burn away our evil and wrongs. Don’t add anymore to the pile. Be determined and steadfast in the face of temptation and abstain from all forms of sin and vice. Avoid frequenting places where sin is committed. Special care should be taken to abstain from the vices of the eyes, ears and tongue as these are the tributaries to the heart and mind.

 

  1. Repent sincerely – Our guest has brought many precious gifts – among them is 10 days of forgiveness and a night better than 1000 months. Repent daily in Ramadan and remain steadfast on the pledges made. We have oppressed our souls greatly through sin. Learn from the Ulama the proper method of Taubah. Also engage in a lot of Istighfar.

 

  1. Free up your time – Our special guest wants our full attention. Try to lessen one’s mundane engagements and free one’s time for solitude, prayers and company of the pious Ulama. Let us begin to value the capital of time especially in Ramadan.

 

  1. Pious company – You would not want your guest to know the bad company you keep. Make a point of dedicating some time of the day or night to sit in good company. Company of the pious is highly beneficial and can take a person forward very quickly.

 

  1. Read for motivation – Our guest will indeed enjoy the melodious recitation of Quran and recalling the stories of the pious. Together with the abundant recitation of Quran, one should endeavour to read some literature on the lives of the pious and how they spent their Ramadan. This could be easily achieved by reading a few pages after the recitation of the Noble Quran.

 

  1. Live the Sunnah – Show quality conduct to our guest. Utilise the auspicious month of Ramadan to build a Sunnah lifestyle. All progress depends on following the beautiful way and life of our beloved Master Muhammad (sallallahu alayhi wasallam). Memorize and recite the masnoon duas for occasions with regularity and make a covenant to continue with this for life.

 

  1. Intensify Dua –  Include among the gifts and favours of our guest is the acceptance of Duas. Something we can never do without – make Dua whenever possible for every form of good. Pray for oneself, family, fellow ones and humanity at large. The Ummah is in great distress and collective Duas are imperative for our fellow Ummatis.

 

  1. Focus on purifying the inner –  With the presence of such an esteemed visitor we will be surprised how quickly and easily we could identify our weaknesses and faults. Be watchful of the dangerous traits of anger, arrogance, vulgar speech, hatred and ill feelings for others. Develop patience, humility, gratitude and sincerity.

 

  1. Think of others – Our guest has brought with the rich lessons of charity, kindness and concern for humanity, being kind and affectionate to others, not causing inconvenience to anyone and thinking of the plight of those who have less than us. These are qualities we must adopt in Ramadan.

 

Honouring the guest is a great Sunnah. What better way to show honour to the esteemed guest of Ramadan than to value and appreciate it fully. If these brief guidelines are adopted with zeal and sincerity, there is great hope that Allah Ta’ala will bestow one with the true rewards of Ramadan.

Source: Darul Ihsan Centre

Bottom head

The Night of Bara’ah

AW Top Header

Sha’ban: Merits, Do’s, and Dont’s Part 2 of 4 

By Mufti Taqi Usmani 

The Night of Bara’ah 

Another significant feature of the month of Sha’ban is that it consists of a night which is termed in Shariah as “Laylatul-bara’ah” (The night of freedom from Fire). This is the night occurring between 14thand 15th day of Sha’ban. There are certain traditions of Prophet Muhammad, Sall-Allahu alayhi wa sallam, to prove that it is a meritorious night in which the people of the earth are attended by special Divine mercy. Some of these traditions are quoted as follows: 

Sayyidah’ Aishah, Radi-Allahu anha, has reported that Prophet Muhammad, Sall-Allahu alayhi wa sallam, has said, “Allah Almighty descends (in a manner He best knows it) in the night occurring in the middle of Sha’ban and forgives a large number of people more than the number of the fibers on the sheep of the tribe, Kalb.” 

Kalb was a big tribe the members of which had a very large number of sheep. Therefore, the last sentence of the hadith indicates the big number of the people who are forgiven in this night by Allah Almighty. 

In another Tradition Sayyidna Mu’adh ibn Jabal, Radi-Allahu anhu,reports that Prophet Muhammad, Sall-Allahu alayhi wa sallam, has said: “Allah Almighty looks upon all those created by Him in the middle Night of Sha’ban and forgives all those created by Him, except the one who associates partners with Him or the one who has malice in his heart (against a Muslim)”. 

Although the chain of narrators of some of these traditions suffers with some minor technical defects, yet when all these traditions are combined together, it becomes clear that this night has some well founded merits, and observing this night as a sacred night is not a baseless concoction as envisaged by some modern scholars who, on the basis of these minor defects, have totally rejected to give any special importance to this night. In fact, some of these traditions have been held by some scholars of hadith as authentic and the defects in the chain of some others have been treated by them as minor technical defects which, according to the science of hadith, are curable by the variety of their ways of narration. That is why the elders of the ummah have constantly been observing this night as a night of special merits and have been spending it in worship and prayers. 

AW Footer

Sha’baan Merits, Do’s & Dont’s Part 2 of 4

AW Top Header

Sha’ban: Merits, Do’s, and Dont’s Part 2 of 4

By Mufti Taqi Usmani

The Night of Bara’ah

Another significant feature of the month of Sha’ban is that it consists of a night which is termed in Shariah as “Laylatul-bara’ah” (The night of freedom from Fire). This is the night occurring between 14thand 15th day of Sha’ban. There are certain traditions of Prophet Muhammad, Sall-Allahu alayhi wa sallam, to prove that it is a meritorious night in which the people of the earth are attended by special Divine mercy. Some of these traditions are quoted as follows:

Sayyidah’ Aishah, Radi-Allahu anha, has reported that Prophet Muhammad, Sall-Allahu alayhi wa sallam, has said, “Allah Almighty descends (in a manner He best knows it) in the night occurring in the middle of Sha’ban and forgives a large number of people more than the number of the fibers on the sheep of the tribe, Kalb.”

Kalb was a big tribe the members of which had a very large number of sheep. Therefore, the last sentence of the hadith indicates the big number of the people who are forgiven in this night by Allah Almighty.

In another Tradition Sayyidna Mu’adh ibn Jabal, Radi-Allahu anhu, reports that Prophet Muhammad, Sall-Allahu alayhi wa sallam, has said: “Allah Almighty looks upon all those created by Him in the middle Night of Sha’ban and forgives all those created by Him, except the one who associates partners with Him or the one who has malice in his heart (against a Muslim)”.

Although the chain of narrators of some of these traditions suffers with some minor technical defects, yet when all these traditions are combined together, it becomes clear that this night has some well founded merits, and observing this night as a sacred night is not a baseless concoction as envisaged by some modern scholars who, on the basis of these minor defects, have totally rejected to give any special importance to this night. In fact, some of these traditions have been held by some scholars of hadith as authentic and the defects in the chain of some others have been treated by them as minor technical defects which, according to the science of hadith, are curable by the variety of their ways of narration. That is why the elders of the ummah have constantly been observing this night as a night of special merits and have been spending it in worship and prayers.

 

AW Footer

Sha’baan Merits, Do’s & Dont’s Part 1 of 4

AW Top Header

Sha’ban: Merits, Do’s, and Dont’s Part 1 of 4

By Mufti Taqi Usmani

Sha’ban is one of the meritorious months for which we find some particular instructions in the Sunnah of Prophet Muhammad, Sall-Allahu Alayhi Wa Sallam. It is reported in the authentic ahadith that Prophet Muhammad, Sall-Allahu Alayhi Wa Sallam, used to fast most of the month in Sha’ban. These fasts were not obligatory on him but Sha’ban is the month immediately preceding the month of Ramadan. Therefore, some preparatory measures are suggested by Prophet Muhammad, Sall-Allahu alayhi wa sallam.

Though it should be kept in mind that the fasts of Sha’ban are for those persons only who are capable of keeping them without causing deficiency in the obligatory fasts of Ramadan. Therefore, if one fears that after fasting in Sha’ban, he will lose strength or freshness for the fasts of Ramadan and will not be able to fast in it with freshness, he should not fast in Sha’ban, because the fasts of Ramadan, being obligatory, are more important than the optional fasts of Sha’ban. That is why Prophet Muhammad, Sall-Allahu alayhi wa sallam, himself has forbidden the Muslims from fasting one or two days immediately before the commencement of Ramadan. The blessed Companion Abu Hurairah, Radi-Allahu anhu, reports Prophet Muhammad, Sall-Allahu alayhi wa sallam, to have said, “Do not fast after the first half of the month of Sha’ban is gone.”

According to another report Prophet Muhammad, Sall-Allahu alayhi wa sallam has said: “Do not precede the month of Ramadan with one or two fasts.”

The essence of the above-quoted ahadith is that Prophet Muhammad, Sall-Allahu alayhi wa sallam, himself used to fast most of the month of Sha’ban, because he had no fear of developing weakness or weariness before the commencement of Ramadan. As for others, he ordered them not to fast after the 15th of Sha’ban for the fear that they would lose their strength and freshness before Ramadan starts, and would not be able to welcome the month of Ramadan with enthusiasm.

AW Footer

At the Approach of Rajab

AW Top Header

 At The Approach of Rajab & Sha’ban

With the sighting of the crescent of Rajab, Rasulullah (Sallallahu ‘Alaihi Wa Salam) would anticipate and begin preparations for the month of Ramadaan. This is two months in advance! People “live to see” various accomplishments in their lives, but a Believer “lives for” and yearns to witness sacred days like these.

The crescent of Rajab signals the start of a “New Season”. One of hope, mercy and forgiveness for a believer. This “season” only finishes three months later; on the day of Eid!

Rajab is the second of the “four sacred months” in the Islamic Calendar which are referred to as: Al-Ash-hurul hurum (Surah Tawbah, verse: 36)

The others are: Zhul-Qa’dah, Zhul-Hijjah and Al-Muharram.

Shaykh Abu Bakr Balkhy (Rahimahullah) says:

“Rajab is a month in which we plant the seeds of good. i.e, by increasing our ‘ibadah. In Sha’ban we water them, to cultivate (and reap the rewards) in Ramadhan”

(Lataif, pg. 173)

Imam Shafi’e (Rahimahullah) has stated: “I have heard that Dua’s are accepted by Almighty Allah on five nights:

1) The night of Jumu’ah,

2 & 3) The nights of the two ‘Eids,

4) The first night of Rajab,

5) The middle (15th) night of Sha’ban,

(Lataiful Ma’arif, pg. 196)

 The Sahabah (Radiyallahu ‘anum) and the Tab’un (Rahimahumullah) would increase their Quranic recital during these months (especially in Sha’ban), i.e. in preparation for Ramadhan. (Lataiful Ma’arif, pg. 192)

Opportunities like these only come once a year. Fortunate are those who maximize their benefit there from.

AW Footer

 

 

Weather the storm

AW Top Header

Why you should weather the storm

Fund managers have preached patience. Financial advisors have urged clients to stay the course. But it hasn’t been easy. Equities are generally expected to do much better than cash in the long run, but over the last five years, local cash investors have had better returns than those who have invested in the stock market. 

OM1

Source: Old Mutual Investment Group (* Average of the Asisa SA Multi-Asset High Equity Category)

 Many people are wondering if this situation will be a permanent feature going forward. It may be useful to go back in history to see what the situation has been over long periods of time, and whether the current situation is unique. The maroon line in the chart below depicts the rolling five-year return of the JSE All Share Index after inflation. The green line shows real cash returns in the same manner.  

OM2

Source: Old Mutual Multi-Managers

there is a lot of volatility in the red line, but that is also cyclical.  For those investors who had the patience to stay invested, equities managed to outperform cash 80% of the time over all these rolling periods, one must believe that the macro-economic environment isn’t broken. While the South African economy faces many risks and challenges, it is coming off a low base. Economic growth has been low, but the view of Old Mutual Multi-Managers is that it will turn around. The second consideration is whether there is value in the market – in other words, if assets are cheap. The chart below shows the real returns of various asset classes over the very long term (the maroon dots). When the green bars are above the dots, they believe the asset class is offering value.

OM3

Source: Old Mutual Multi-Managers

 In almost all cases, asset classes currently look cheap with the exception of global bonds, Watson says. Portfolio managers say based on their current expectations of asset class returns, the typical balanced fund could deliver around 9.5% in nominal terms per year over the next five years, compared to 7% for cash. The assumption is that inflation will be around 5%.

Many people are disappointed that change in the country hasn’t happened quickly enough, however change has been extraordinary. Just over a year ago, South Africa had a poor team in charge. Today, a much better leadership team is in place and President Cyril Ramaphosa wants to take the country in the right direction. It is going to take time. Confidence has to come back, but due to the depressed asset prices in South Africa and because of those poor returns over a number of years – the outlook for better returns is promising, specifically in South African assets.

                                                                                                                                                          Source (Old Mutual)

AW Footer

 

Taqwa (Piety) has three Levels

AW Top Header

Taqwâ (piety) has three levels:

1. Do not use such things or wealth that the jurists and ulamâ have declared harâm (forbidden), as using these will result in one becoming a fâsiq (open rebellious sinner), and his testimony will be rejected in court. This is the level of piety of the common Muslim.

2. The second level of piety is that of the sulahâ (pious). This means that one should abstain from doubtful things, even though the Muftis, based on outwards circumstances, have declared them to be halâl. However, these items are such, that there is a possibility of hurmat (prohibition, thus they become doubtful. The sulahâ abstain from such type of food.
Rasulullâh Sallallahu Allaihi Wasallam said, “Leave that in which there is doubt, for that in which you do not have doubt.” Ibn Hibbân(722), Tirmidhi (2518), Hâkim (2/13)

3. The third level is that of the atqiyâ (those having taqwâ/abstinent). Rasulullâh Sallallahu Allaihi Wasallam said, “A person cannot reach the rank of the muttaqin (those having taqwâ), until he does not leave out the harmless things, for fear of getting engaged in those things in which there is harm.” Tirmidhi (2451), Hâkim (4/319), Ibn Mâjah (4215)

Umar Radhiallahu Anhu used to say, “We used to leave out nine-tenths of halâl, out of fear of falling into harâm.” Musannaf of Abdur Razâq (8/152)

Based on this principle, some of Allâh Ta’aala’s pious servants would only suffice on 99 dirhams when they were eligible to receive 100. When they had to fulfil anyone’s right, they would give extra. When claiming their right, they would take less!

Umar bin Abdul Aziz Rahmatullahi Allahi would cover his nose, when musk was weighed in his presence in the Baitul-Mâl (public treasury).
When asked regarding this, he remarked, “The benefit of it is in its fragrance.” Abu Nua’ym in Hilyah, Bayhaqî in Az-Zuhdul Kabîr (919), Taârikhe Dimishq (28/64)

This is the reason for abstaining from delicious halâl food, and permissible forms of beautification. There is fear that once habituated to it, one’s nafs will overpower a person, and thereafter lead him to prohibited desires. The prohibition of the Qurân of longingly gazing at the abundance of wealth and material chattels of the disbelievers, and towards their status and honour, is because the beauty and lustre of one’s îmân diminishes, due to this outward glamour. When the love and desire of worldly wealth and goods overtakes one, the love of îmân does not remain in the heart. A pious person once said, “He whose clothing is thin, his Dîn is also thin.” In short, according to the abstinent, only that wealth which is halâl, is presently devoid of any form of doubt, and devoid of any possibility of causing harm in future, is worthy of consumption.

Tabligh-al-Deen – The forty foundations of the Religion by Imam Abu Hamid Muhammad ibn Muhammad al-Ghazaali Rahmatullahi Allaihi. Pg 32-33.

AW Footer

Boost your retirement savings by reducing your monthly tax burden

AW Top HeaderIf you earn R50 000 a month and were shown a perfectly legal way to save almost R800 000 in tax over 20 years, would you take it?

Niel Fourie, the public policy actuary at the Actuarial Society of South Africa, has a solution that can help you to achieve exactly that, while at the same time significantly boosting your retirement savings. But there’s a caveat: you have to be prepared to sacrifice a portion of your monthly take-home pay.

To illustrate this, Fourie crunched the numbers for monthly salaries of R50 000, R25 000 and R100 000.

“Obviously, the higher your pay scale, the more impressive the numbers,” says Fourie.

Take a salary of R50 000 a month. If you’re contributing 10%, or R5 000, to a retirement fund, your monthly tax is R10 683 (based on the 2018/19 tax tables). Assuming there are no other deductions, your take-home pay is R34 317.

If you doubled your monthly contribution to the retirement fund to R10 000, your tax would drop by R1 800 and your take-home package to R31 117, a reduction of R3 200. Fourie says that, effectively, the government is sponsoring the additional R1 800 towards your retirement savings, by reducing your tax rate as an incentive to save more for your retirement.

Over 12 months, your tax saving would amount to R21 600 and over 20 years to R794 568.77, assuming a 6% salary increase every year and the tax brackets adjusting accordingly.

Fourie says that, instead of sacrificing this money to taxes, you have effectively grown your retirement savings by at least this amount or more, depending on where you invested your money.

Here is how much you can save if you earn R25 000 or R100 000 a month:

• If you are contributing 10%, or R2 500, of your salary of R25 000 every month to a retirement fund, your monthly tax is R3 372 and your take home-pay is R19 128, Fourie says.

If you doubled your monthly contribution to the retirement fund to R5 000, your tax would drop by R650 and your take-home package to R17 278, a reduction of R1 850, Fourie says. In this case, the government is sponsoring an additional R650 towards your retirement savings.

Over 12 months, your tax saving would amount to R7 800 and over 20 years to R286 927.61, Fourie says.

• If you are contributing 10%, or R10 000, of R100 000 to a retirement fund, your monthly tax is R28 814. Assuming there are no other deductions, your take-home pay is R61 186.

If you doubled your monthly contribution to a retirement fund to R20 000, your tax would drop by R4 100 to R24 714 and your take-home package to R55 286, a reduction of R5 900. In this case, Fourie says, the government is sponsoring R4 100 towards your retirement savings. This tax saving would amount to R49 200 in the first 12 months and to R1.8 million over 20 years.

Fourie says that, by giving up a portion of your take-home pay, you end up with significant tax savings, which, if invested wisely, could grow into a sizeable nest egg.

“Even though you will be taxed when you start drawing an income in retirement, it will most likely be at a lower marginal rate. It is also clear that, the more you earn, the more compelling the argument to save in a pension fund or a retirement annuity,” he says.

Source: IOL

AW Footer

The Tax Advantages of an Endowment.

AW Top Header

The Tax Advantages of an Endowment.

To build a successful long-term investment portfolio, one must consider ways to enhance their capital whilst finding efficient mechanisms to reduce your taxes. Endowments remain a useful investment vehicle and offer a disciplined way of saving where you are committed for a certain period so that you can reach your goals.

The tax benefits of endowment policies

Endowments offer an attractive tax-efficient option for people who want to save more than the maximum annual limit for tax-free savings accounts, and those who have exhausted their annual tax allowances such as tax-free interest income.

In addition to tax savings, an endowment offers the following advantages:

  • Simplified tax administration as tax is recovered within the endowment and taken care of on behalf of the investor.
  • Insolvency protection – the entire value of the policy will be protected against creditors three years after inception until five years after the maturity, or termination of the policy.
  • Beneficiary nomination can lead to potential savings on executor’s fees (up to 3.99% of fund value).
  • Where a beneficiary has been nominated, payment of the death benefit does not depend on the winding up of the estate and beneficiaries will receive the proceeds relatively quickly.
  • Liquidity is created in the estate as payment of the death benefit does not depend on the winding up of the estate and beneficiaries will receive the proceeds relatively quickly.

Advantages of staying invested in an endowment, even after maturity

  • You will not pay any tax on future policy proceeds; Your chosen fund house will pay the tax on your behalf from its policyholder’s fund.
  • Access to the money: After the maturity date, you have access to the investment funds through lump sum or regular withdrawals. These withdrawals will also be tax free.
  • Insolvency protection – the entire value of the policy will be protected against creditors five years after the maturity, or termination of the policy.

There are a couple of options available to you after maturity so you can continue to enjoy the benefits of your endowment. At maturity, you have the following options:

  • With your accumulated savings, you can continue growing your money by remaining invested in your endowment policy where your full or some of your maturity proceeds can continue growing (depending on how much you withdraw at that point).
  • If you are paying premiums, you also have the option to continue paying your current premiums or to contribute a higher amount.

It horses for courses when choosing an endowment. The main advantage is the tax benefits which tend to benefit the higher taxpayers.

Source: Sanlam

AW Footer