29 July 2011

Offshore investment using a life wrapper

SARS released Binding Private Ruling BPR 105 on 21 July 2011. The interesting thing that flows from this ruling is how SARS will treat the policy.

The ruling deals with a policy issued by a foreign long-term insurer that is not registered under South Africa's Long-Term Insurance Act. The policy is issued to a natural person who is a resident of South Africa.

The terms and conditions provide that the death and surrender benefit in terms of the policy is directly linked to the performance of assets held in a specific and separate bank portfolio account opened for the policyholder. The purpose of the portfolio account is to hold the assets as the basis on which the benefits of the policy are calculated. The policyholder may name an offshore based fund manager approved by the insurer that manages the portfolio assets on the policyholder's behalf. The policyholder bears the investment risk and is responsible for the performance of the assets in the portfolio. The investment option can be changed at any time by the policyholder. Neither the policyholder nor any other person entitled to any benefits under the policy holds a legal interest in the assets held in the portfolio account as these assets remain the exclusive property of the insurer. However, the assets in the portfolio are segregated and held for the benefit of the policyholder. This also applies in the event of the insurer's insolvency.

The policy may be surrendered in whole or in part at any time, (meaning that the policyholder can cancel the policy without a "life event" transpiring as defined in the Long-Term Insurance Act), provided that the portfolio account linked to the policy shows a positive balance after deducting all costs and fees. The settlement payment in terms of the policy can be made in cash or at the policyholder's request by means of a transfer of the assets held in the portfolio account. The ruling sets out that the portfolio assets will be regarded as being held on behalf of and for the benefit of the policyholder. All amounts received or accrued in respect of the portfolio assets must be reflected as a receipt by or accrual to or in favour of the policyholder. In other words, this policy is treated on a look-through basis by SARS. Residents who hold policies issued on a similar basis to that described here should take note of this ruling.

Alastair Morphet

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