South African Capital Gains Tax on Emigration: Deemed Disposal Explained

When you formally end your South African tax residency, SARS treats you as if you sold everything you own the day before you left. You did not actually sell anything. Nobody bought your shares, your overseas apartment, or your unit trusts. But SARS pretends you did. They calculate what the capital gain would have been if you had sold each asset at its market value on that day, and then they send you a tax bill for it. This is the capital gains tax emigration charge that catches so many South Africans off guard.

This is called the exit tax, and the legal provision that creates it is Section 9H of the Income Tax Act. It is technically a capital gains tax event, not a separate type of tax. But because it is triggered specifically by emigration (ceasing your tax residency), most people refer to it as the exit tax or the capital gains tax on emigration.

This guide explains exactly how the deemed disposal works in the context of capital gains tax emigration from South Africa, including which assets are caught and which are excluded, how to calculate the tax, the double taxation trap that many emigrants fall into, and what you need to do to handle it properly on your tax return.

What Is a Deemed Disposal?

Let’s start with the basics, because this concept confuses a lot of people. A “deemed disposal” is a legal fiction. It means the law pretends something happened even though it did not actually happen in real life. In this case, the law pretends that you sold all your qualifying assets the day before you stopped being a South African tax resident.

Here is how Section 9H works, step by step.

On the day before you cease to be a SA tax resident, SARS treats you as having disposed of (sold) each of your assets at its market value on that date. Market value means the price a willing buyer and a willing seller would agree to in an open market. Then, on the actual day you cease to be a resident, you are treated as having reacquired (bought back) those same assets at the same market value.

The result is that any capital gain that built up while you were a South African tax resident gets taxed at the point of emigration. After that, South Africa’s capital gains tax reach over those assets ends (for most asset types), because you are no longer a resident and the assets have been given a new base cost equal to their market value on the date of cessation.

Think of it like this. You bought shares for R500,000 ten years ago. On the day before you cease residency, those shares are worth R1,200,000. SARS treats you as if you sold them for R1,200,000. Your capital gain is R700,000. You owe capital gains tax on that R700,000, even though you still hold the shares and have not received a single rand from any sale.

Which Assets Are Caught by Capital Gains Tax on Emigration?

Section 9H casts a wide net. It covers your worldwide assets, not just assets in South Africa. The following types of assets are subject to the deemed disposal.

The key takeaway is that foreign property is included. Many expats assume the exit tax only applies to South African assets, but that is wrong. If you own a flat in London or a house in Toronto, SARS will include the gain on that property in your exit tax calculation.

Which Assets Are Excluded?

Not everything gets caught. Section 9H specifically excludes certain assets from the deemed disposal. These are assets that remain in the South African tax net even after you become a non-resident, so there is no need for SARS to tax them on the way out.

One important subtlety. While direct ownership of SA immovable property is excluded, indirect ownership is not. If you hold shares in a South African company whose value is mainly derived from SA property (a “property-rich company”), those shares are subject to the deemed disposal. The shares themselves are the asset being caught, not the property.

How to Calculate Capital Gains Tax on Emigration

The calculation follows the standard CGT methodology. Let’s walk through it step by step, because if you have never dealt with capital gains tax before, this will be new to you.

Step 1: Work Out the Capital Gain on Each Asset

For each asset subject to the deemed disposal, calculate the capital gain (or loss) as follows.

Market value on the day before cessation minus base cost equals capital gain (or loss).

The base cost is what you originally paid for the asset, plus any allowable expenses (like brokerage fees, transfer duty, or capital improvements for property). If the asset was acquired before 1 October 2001 (when CGT was introduced in South Africa), you use the market value as at 1 October 2001 as your base cost instead, or you can use one of the other valuation date methods allowed by SARS. You can find more detail on base cost and valuation date rules on the SARS Capital Gains Tax page.

The market value on the day before cessation must be a fair and reasonable value. For listed shares, this is straightforward because you can look up the share price on that date. For unlisted shares, foreign property, or crypto, you may need a formal valuation. SARS can challenge values that appear to be understated, so it is important to get this right.

Step 2: Add Up All Capital Gains and Losses

You add together all the capital gains from the deemed disposals, and subtract any capital losses. You also include any actual disposals (real sales of assets) that happened during the same tax year before the date of cessation. The result is your aggregate capital gain (or loss) for the year.

Step 3: Subtract the Annual Exclusion

Every individual gets an annual exclusion of R40,000. This means the first R40,000 of your net capital gain in a tax year is not taxed. You subtract this from your aggregate capital gain.

If you die in the same tax year (unlikely but worth noting for completeness), the exclusion increases to R300,000. But for emigration purposes, you get the standard R40,000.

Step 4: Apply the 40% Inclusion Rate

South Africa does not tax 100% of your capital gain. For individuals, only 40% of the net capital gain is included in your taxable income. This is called the inclusion rate. So if your net capital gain (after the annual exclusion) is R1,000,000, only R400,000 is added to your taxable income.

Step 5: Tax at Your Marginal Rate

The included amount (the 40%) is added to your other income for the year and taxed at your normal marginal income tax rate. The highest marginal rate in South Africa is 45%, which means the maximum effective CGT rate for individuals is 18% (45% x 40%).

The Double Taxation Trap: Capital Gains Tax Emigration and Foreign Property

This is one of the most important things to understand about capital gains tax on emigration from South Africa, and it is something many tax advisors do not adequately warn people about.

Here is the problem. When you cease SA tax residency, SARS taxes you on the deemed disposal of your foreign property at its market value. But no actual sale has taken place. You still own the property. Because no actual sale happened, you have not paid any tax in the foreign country. And because you have not paid any foreign tax, you cannot claim a foreign tax credit against the South African tax. Section 6quat only lets you claim a credit for foreign tax that has actually been paid.

Now fast forward a few years. You eventually sell the foreign property. The country where the property is located (let’s say the UK) taxes you on the full capital gain, calculated as the difference between the sale price and your original purchase price. The UK does not recognise the South African deemed disposal. The UK does not give you a stepped-up base cost just because SARS taxed you on a fictional sale when you left South Africa.

The result is that the same capital gain gets taxed twice. Once by SARS when you cease residency (on the deemed disposal) and again by the foreign country when you actually sell the property.

South Africa’s Double Taxation Agreements generally do not help in this situation, because the deemed disposal under Section 9H happens while you are still a South African resident. SARS’s taxing rights are preserved precisely because the fictional sale occurs the day before you cease residency, when you are still fully within the SA tax system.

This is a known gap in the law, and it effectively penalises people for ceasing South African tax residency. There is no easy fix. The best approach is to factor this potential double tax cost into your planning before you emigrate, especially if you own foreign property with significant unrealised gains.

When Does Capital Gains Tax Emigration Actually Apply?

The capital gains tax emigration charge applies on the day you cease to be a South African tax resident. But when exactly is that? It depends on how you were classified as a resident in the first place.

If you were a resident because you were “ordinarily resident” in South Africa (meaning SA was your real home, your permanent base), you cease to be a resident on the day you leave South Africa with the genuine intention of not returning. This is a factual determination based on your circumstances. Things like selling your house, moving your family, cancelling memberships, and establishing a permanent home in another country all point toward ceasing ordinary residence.

If you were a resident because of the physical presence test (you spent enough days in SA to qualify), you cease to be a resident only after you have been physically outside South Africa for a continuous period of at least 330 full days. Once you hit 330 days, you are deemed to have ceased residency on the day you left.

You can also cease residency through the application of a Double Taxation Agreement. If the DTA tie-breaker rules determine that you are exclusively a resident of the other country, you are no longer a South African tax resident for purposes of the Income Tax Act. The exit tax applies from the date the DTA takes effect.

For the full process of how to formally end your tax residency, see the cease tax residency guide. For an understanding of which test applies to you, see the tax residency test guide.

How to Handle Capital Gains Tax Emigration on Your Tax Return

In the year you emigrate, your tax year gets split into two periods. For the period from 1 March to the day before cessation, you are treated as a resident and must declare your worldwide income and the deemed disposal gains. For the period from the day of cessation to the end of February, you are treated as a non-resident and only declare South African-sourced income.

You must file a final resident ITR12 return for the first period. This return must include all the deemed disposal capital gains, plus any other income you earned during the resident period. The exit tax liability is calculated and included in this return.

You also need to update your RAV01 form on SARS eFiling to reflect your change in residency status. SARS requires a detailed motivation letter explaining the basis on which you ceased residency, along with supporting documents (passport, travel records, proof of your new home abroad, evidence of ties severed with SA). This is not a quick process and SARS may ask follow-up questions.

Certain exemptions and rebates are proportionally reduced for the split year. The annual CGT exclusion (R40,000), interest exemption (R23,800 or R34,500), retirement fund contribution limit (R350,000), and primary tax rebates are all apportioned based on the number of days you were a resident versus a non-resident during the year.

Can You Reduce Your Capital Gains Tax on Emigration?

You cannot avoid capital gains tax on emigration entirely if you cease SA tax residency and you have assets with unrealised gains. But there are legitimate ways to reduce the impact.

Sell assets with losses before you leave. If you hold assets that are sitting at a loss, selling them before cessation creates a capital loss that can be offset against the gains from the deemed disposal. This reduces your net capital gain and therefore your tax bill.

Use the primary residence exclusion. If you sell your South African primary residence before emigrating (an actual sale, not the deemed disposal), you can claim the R2 million primary residence exclusion. This only applies if it is your primary residence and you have been living in it. If you have already moved abroad and are renting it out, it may no longer qualify as your primary residence and the exclusion may not apply.

Time your cessation carefully. The tax year runs from 1 March to 28/29 February. If you have other income during the year, the deemed disposal gains are added on top and taxed at your marginal rate. If you can time your cessation so that the deemed disposal falls in a year where your other income is lower, the overall tax rate on the gains may be lower.

Get proper valuations. The market value of each asset must be determined accurately. If you understate values, SARS can challenge them and potentially impose additional penalties. But if you overstate values, you pay more tax than necessary and you do not get a refund when you eventually sell the asset for less. Independent valuations from qualified professionals are worth the cost.

Consider whether ceasing residency is the right move at all. For some expats, especially those with large unrealised gains on foreign property, the exit tax cost is so significant that it may be worth remaining a SA tax resident and using the R1.25 million foreign income exemption and foreign tax credits to manage the annual tax bill instead. This is a cost-benefit analysis that depends entirely on your personal situation.

What Happens to Your South African Property After Emigration

Your South African immovable property is excluded from the exit tax. It keeps its original base cost. When you eventually sell it (whether that is next year or twenty years from now), SARS will tax you on the full capital gain calculated from the original base cost to the sale price. Being a non-resident does not protect you from CGT on SA property.

There is also a withholding tax that applies when a non-resident sells immovable property in South Africa. The buyer is required to withhold a percentage of the purchase price (currently 7.5% for individuals) and pay it to SARS on your behalf. This is an advance payment toward your final income tax liability for the year of sale. If the withholding tax exceeds your actual tax, you can claim a refund. If it is less, you owe the difference.

Rental income from your SA property is also still taxable in South Africa as a non-resident. You declare it on a non-resident ITR12 return and pay tax at the normal rates.

What Happens to Your Retirement Funds

Your interests in South African pension funds, provident funds, and retirement annuities are excluded from the exit tax. They are not part of the deemed disposal. But they are not forgotten. When you eventually withdraw or receive payments from these funds, the amounts will be taxed in South Africa according to the applicable lump sum or annuity tax tables.

For a full guide on accessing your SA retirement funds from overseas, see the retirement fund withdrawal overseas guide.

If You Did Not Declare Capital Gains Tax on Emigration

If you left South Africa years ago, ceased your tax residency, but never declared the capital gains tax emigration liability on your final tax return, you have a problem. SARS does not know about the gain, but you have an unfiled or incorrectly filed return. This is a tax default.

The best route to fix this is through the SARS Voluntary Disclosure Programme. Coming forward voluntarily can save you from understatement penalties (which can be up to 200% of the tax owed) and criminal prosecution. You will still owe the tax and interest, but the penalty relief makes a significant difference.

Do not wait for SARS to find out. With the Common Reporting Standards (CRS) sharing financial data between countries, SARS is increasingly able to identify South Africans who have assets abroad and have not been compliant.

For the full picture on what SARS expects from you as a South African living abroad, see the complete guide to South African expat tax. If you are still planning your move, the leaving South Africa tax guide covers the full checklist of what needs to happen before you go.