Where can I invest R250 000 for the best return, without triggering tax annually?

Dear reader,

If you are under the age of 55, debt-free, and already have a solid pension fund quietly building in the background, you are in a fortunate position. A lump sum of R250 000 can be put to work in ways that not only aim for strong growth but also keep the tax impact to a minimum. The right structure now can have a significant effect on what you ultimately take home years down the line.

Two practical, tax-conscious options to consider are:

• Tax-free savings account (TFSA), or a
• Unit trust investment.

Both allow you to invest in balanced or equity funds to target long-term growth. The key difference lies in how the gains, dividends, and interest are taxed.

1. Tax-free savings account (TFSA)

A TFSA has a contribution limit of R36 000 per tax year and a lifetime cap of R500 000. Within these limits, all returns – whether capital gains, dividends, or interest – are entirely tax-free, making it a powerful tool for compounding growth.

You can invest the funds aggressively to maximise returns, knowing tax won’t erode your growth. While you can access the money at any time, withdrawals permanently reduce your remaining lifetime allowance, so they are best avoided unless necessary.

2. Unit trust investment

Unit trusts have no contribution limit, allowing you to invest any lump sum you choose. However, there are tax considerations:

• Interest: The first R23 800 per year is tax-free; any amount above this is taxed at your marginal rate.
• Dividends: Subject to a 20% withholding tax, deducted before you receive them.
• Capital gains: Taxed only when you sell your units; with the first R40 000 per year exempt.

Like the TFSA, funds are accessible at any time, and you can switch between different funds if your strategy changes.

The numbers – five-year projection

Assuming 10% p.a. growth, with dividends taxed annually and capital gains at the end:

The numbers – 10-year projection

Final take

By using both products together – maxing out the TFSA each year and placing the balance in a growth-oriented unit trust – you can achieve healthy, tax-efficient growth. Over a decade, this combination could turn R250 000 into nearly R600 000 after tax, making your money work as hard as you do.

Contact a trusted advisor to assist you with creating a personalised plan tailored to your goals.