Budget 2020: A somewhat better-than-expected outcome - February 2020

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Coronation Insights

Coronation Insights


  • No significant tax increases in the 2020 tax year
  • Full inflation relief for the first time since 2014
  • Increase in annual tax-free investment allowance to R36 000

In a surprisingly constructive budget for taxpayers, and despite a significant under-collection in the previous tax year, government announced that they will not aim to raise additional revenue through the tax proposals included in the 2020 Budget. The marginal income tax rate, as well as the rates applicable to Dividends Tax, Capital Gains Tax and VAT, all remained unchanged. For the first time since 2014, full inflation relief was granted in the setting of the tax brackets, resulting in a small year-on-year decline in the effective income tax rate across the income curve. The annual tax-free investment allowance was increased by R3 000 to R36 000. None of the other investment-related tax breaks mentioned below have been adjusted for inflation.

The somewhat better-than-expected outcome this year follows the impact of material tax hikes on investment activity announced three years ago, the increase in the VAT rate announced in 2018 and the still-unadjusted bracket creep that built up over the preceding five years. Effective tax rates across the income spectrum remain two to three percentage points above the pre-austerity levels announced in the 2014 Budget (see the table below).


As a reminder, investors qualify for the following investment-related tax breaks:

  • Marginal tax
    Individuals pay a lower marginal tax rate on capital gains (18%) and dividend income (20%) compared to interest, property rental income and salary income (45%). This means that investors not using tax-advantaged vehicles are, all other things being equal, better off holding equities in their portfolios than other assets.
  • Tax-free investments
    Tax-advantaged contributions to tax-free investment accounts increased to R36 000 per year. This arguably remains the best tax break available to individual investors with long time horizons. While you use after-tax money to invest in a tax-free investment, all income and growth earned from the underlying funds are not subject to local tax, and all proceeds at the time of withdrawal will also be untaxed. There are no investment restrictions for tax-free investments, allowing a full allocation to growth and/or offshore assets. Just do not over-contribute – contributions in excess of the annual limit are taxed very punitively.
  • Retirement funds
    Tax-deductible contributions to retirement funds remain at the lower of 27.5% of taxable income (excluding retirement benefits and capital gains) or R350 000 annually. Your capital and reinvested income will grow tax free while it remains in the retirement fund, and you will only pay tax on the way out when you start to withdraw from your retirement fund (at the then-prevailing tax rate). Your underlying investments must comply with Regulation 28 of the Pension Funds Act, which sets a limit on the level of exposure you can have to equity, property and offshore assets. 
  • Interest exemption
    The general interest exemption remains R23 800 for investors younger than 65, and R34 500 for investors older than 65. At the current yield of around 8% on managed income funds such as Coronation Strategic Income and Coronation Money Market, this means that you can invest approximately R300 000 if you are under 65 or R430 000 if you are over 65 before starting to pay tax on interest earned.
  • Capital gains
    The annual capital gains exclusion of the first R40 000 of realised gain is unchanged. This exclusion makes it more efficient to stagger the realisation of capital gains over different tax years.
  • Endowments
    Endowment policies also remain attractive for certain long-term investors. Individual investors in these investment policies currently pay effective tax rates of 30% on interest and property rental income, 20% on dividend income and 12% on capital gains.