Guide to complete the Lump Sum Tax – 27 June 2025 – Layman Version

What is a Lump Sum Tax Directive?

• • A lump sum tax directive is essentially an instruction from SARS to a retirement fund (like a pension fund or provident fund) or a long-term insurer, telling them how much tax to deduct from a large, one-time payment (a “lump sum benefit”) before it’s paid out to a member [5a, 112].
  • Why is it needed? It ensures the correct amount of tax (known as “Employees’ Tax” or PAYE) is withheld from your lump sum benefit before you receive it [5a, 23a].
  • Who benefits? This guide is mainly for Fund Administrators / Long-term Insurers and/or employers to help them complete these forms [5a].

Who is Responsible for This?

• • Fund Administrators and Long-term Insurers are the ones who must complete and submit these tax directive application forms [10a, 15b, 16d].
  • You, the member of the fund (the taxpayer), your tax representative, tax practitioner, or financial advisor, CANNOT submit these forms. This is a very important rule to remember [16d, 23b]. If a fund administrator receives a tax directive they didn’t submit, or if the information doesn’t match what the member chose, they should reject it [16di].

Useful Tools for Fund Administrators

• • Before actually submitting a tax directive application, there are tools to help estimate the tax.
    • Tax Directive Simulator:
      • Available since April 20, 2018 [17a].
      • Purpose: Allows Fund Administrators/Long-term Insurers to get an estimated tax calculation before submitting the official application [17a]. This helps the member make an informed decision about their benefit [17a, 18iii].
      • Important Note: The simulator will not show if you have outstanding debts with SARS that could be deducted from your lump sum (called an IT88L notice) [19iv]. The member is responsible for checking their Statement of Account (SOA) for any debts through eFiling, SARS Online Query System, WhatsApp, or the SARS Mobi-app [19iv]. Simulations are also not stored on SARS systems, so the Call Centre or Branch offices cannot help with queries about them.
    • Lump Sum Calculator:
      • Available since December 6, 2021 [20a].
      • Purpose: This tool is for taxpayers (members) or their tax practitioners to determine the tax implications before they even send their request (option form) to the Fund Administrator/Long-term Insurer [20a].
      • Important Note: Similar to the simulator, the lump sum calculator will not show if you have outstanding debts that could be deducted [21ii]. Members must check their SOA themselves [21ii].

Getting and Submitting the Application Forms

• • • How to Obtain a Form:
      • eFiling: This is the recommended way for Fund Administrators/Long-term Insurers. They need to be registered as an organization on eFiling [22ai, 23b].
      • Electronically (via an Interface): Fund Administrators/Long-term Insurers can use specialized interface agents to submit forms online [24aii].
      • SARS Website: The latest forms are available for download [24aiii].
    • How to Submit a Form:
      • Electronically (Recommended): Through an Interface agent or via eFiling [25i, 25ii]. This is preferred for efficiency [25 Note].
      • eFiling for Supporting Documents: Since December 9, 2019, applications requiring supporting documents (like those for non-residents, Cessation of SA Residence, Visa Expiry, or Living Annuity Commutation Termination of a Trust) must be submitted through eFiling [26a, 26b].
      • Email (Manual/Paper Copy – Only in Extreme Cases): If an electronic submission was rejected, you might be able to email a hard copy. Beware: It will be returned unprocessed if there’s no record of an electronic rejection or if the reason for manual submission isn’t clear [27iii].
    • Processing Time: For electronic submissions with supporting documents, SARS officials will verify the application and documents within 21 working days [30c]. If incorrect documents are uploaded or the form is incomplete, it will be rejected [30ci]. Rejection reasons are available on eFiling [30cii].
  • Filling Out the Application Forms: The Basics
  • There are different forms for different reasons, but some sections are common.
    • Form Types:
      • Form A&D: For Retirement or Death before Retirement (including lump sums from preservation funds) [5ci].
      • Form B: For events Before Retirement or Death (like resignation, withdrawal, retrenchment, or transfers) [6cii].
      • Form C: For Retirement Annuity Funds (RAFs) [6ciii].
      • Form E: For Annuity Commutations (lump sums paid after retirement or death from an annuity) [6civ].

Taxpayer Details (Section 3.1):

• • • This is where the personal details of the person receiving the lump sum go [33b].
    • Taxpayer Reference Number (TRN): This is your income tax number [34a]. It’s mandatory for “Two-Pot” transfers [39d]. It’s NOT mandatory if you’re a domestic worker, left SA before 1999, or have no active/inactive number on SARS systems [40f]. If you don’t provide a TRN but have one, the application will be declined [37c, 51 Note].
    • Year of Assessment (Tax Year): This is the tax year the lump sum became available to you (the “date of accrual”) [41b, 41c].
    • Personal Details (Name, Date of Birth, ID/Passport): These must exactly match your official documents and SARS records to avoid rejection [45b, 45d, 46c, 46d]. Nicknames are a no-go [45biii].
    • Annual Income: Only mandatory for certain public sector transfers or unapproved funds with old accrual dates [52a]. This helps ensure the tax calculation is correct [53c]. It should exclude the lump sum amount itself [53d].

Particulars of the Fund (Section 3.2):

• • • This is about the fund or insurer paying the benefit.
    • Registered Name of Fund/Insurer: Must match the name registered with the Financial Sector Conduct Authority (FSCA) exactly, including spelling and special characters [65ai, 66a].
    • FSCA Registration Number: Mandatory for approved funds. This number is validated against the FSCA list [77a].
    • Fund PAYE Number: This is the fund’s reference number used to pay over the tax deducted from your lump sum to SARS [74e].
    • Membership/Policy Number: The unique number the fund uses for you [82a].
    • Type of Fund: You’ll select if it’s a Pension, Provident, Preservation, or Retirement Annuity Fund [83a].
    • Public vs. Approved vs. Other: You’ll indicate if the fund is a public sector fund, an approved private sector fund, or “Other” (e.g., not yet approved – where the benefit will be taxed as normal income) [85a, 86i].
    • Special Cases: Living Abroad or Specific Situations (Crucial for Your Query)
    • This section directly addresses South Africans working abroad or specific situations related to residency.
    • Non-Residents and International Tax

Is the Taxpayer a Non-Resident? (Section 3.1.5):

• • • If you’re a non-resident and a contributing member of a South African retirement fund, or if the application is for “Cessation of SA Residence” or “Visa Expiry,” this field is mandatory [54a]. You must select “Yes” or “No” on the eFiling form [54aiii].
    • If you are not a resident according to the Income Tax Act definition, the fund must indicate “Yes” [54aiv].

Certificate of Residence (Section 3.1.6): Your “Proof of Home”

• • • This is mandatory if the member is a non-resident [58a].
    • You must provide a Certificate of Residence from the tax authority of the country where you currently live.
    • It must not be older than 12 months [59iii, 334i, 347i, 500i].
    • It must be in English [59ii]. If not, it needs a translated English version [59iiA].
    • This certificate is crucial when a Double Taxation Agreement (DTA) is in place between South Africa and your country of residence [60iv]. A tax assessment alone doesn’t confirm tax residency [60iv].
    • If there’s NO DTA, a citizenship document or an immigration certificate can be attached instead [60v].
    • If you can’t get a Certificate of Residence, you need a document from that Tax Authority stating they can’t issue one, plus a citizenship or immigration certificate to prove your residency status [61A, 61B].
    • If you’re not registered for tax in your country of residence, an affidavit explaining why is needed. In this case, the DTA won’t be considered [61C].

Non-Resident Service Rendered Inside/Outside Republic (Section 9(2)(i)) (Sections 3.4.25, 3.5.34, 3.7.21):

• • • This section is specifically for non-residents and is available only on SARS eFiling forms [245a, 423a, 620a].
    • It must be completed if you rendered services inside or outside South Africa while contributing to the fund, especially for occupational or preservation funds [57c, 245b, 424c].
    • You need to provide:
      • Total months services rendered while contributing to the fund [246i, 424ci, 621iiiA].
      • Total months services rendered inside South Africa while contributing [246ii, 424cii, 621iiiB].
      • Total months services rendered outside South Africa while contributing [246iii, 424ciii, 621iiiC].
      • A detailed history of employment letter (on the employer’s letterhead) is mandatory. This letter must clearly show start and end dates of employment, and where services were rendered while contributing to the fund [56v, 246c, 270 Note, 361 Note 2, 425d, 620i]. If this isn’t attached, the directive will be rejected [270 Note, 361 Note 2].
    • Even if no services were rendered inside SA, but you’re a non-resident member of a SA fund (e.g., from Eswatini, Lesotho, Botswana), this section still needs to be completed [247e, 425e].

Moving Away Permanently: “Cessation of SA Residence” (Sections 3.5.15, 3.6.12)

• • • This is the current reason to use if you ceased to be an SA resident, effective from March 1, 2021 [319a, 328i, 329e, 332e, 472a, 483i, 484b].
    • It applies if you haven’t been an SA resident for an uninterrupted period of three years or longer before you chose to withdraw the benefit [330b, 331c, 332ii, 484b, 485c].
    • You need to have informed SARS you ceased to be a resident (by completing a RAV01 form) [332i, 337B, 492B]. If SARS records don’t show you as non-resident, the application will be rejected [337B].

Required Documents:

• • • Certificate of Residence (as above) [334i, 488i].
    • Documentation confirming cessation of residence: This can include passport entries/exits with a travel diary, assessments from your new country of residence, or other supporting documents proving you were outside SA for the uninterrupted three years [334ii, 488ii]. The fund doesn’t need all documents at once, but enough to confirm the three-year period.
    • A “Notice of non-resident status” from SARS can be attached, but it alone isn’t enough to satisfy the three-year requirement [338 Note, 491 Note 1].
    • Two-Pot System Impact (from September 1, 2024): If you meet the 3-year non-residency rule, you can access the full value of your Vested Component and Retirement Component as a lump sum. The Savings Component can only be accessed as a “Savings Withdrawal Benefit” [330c, 331d, 485d, 486d].

“Emigration Withdrawal” (Repealed) (Sections 3.5.14, 3.6.11):

• • • This reason is no longer accepted from September 1, 2024 [319a, 472a].
    • It was previously used for formal emigration recognized by the South African Reserve Bank (SARB) for exchange control purposes [319d, 473d].
    • The information is kept in the sources only for past applications [319c, 473c].
    • If someone initiated formal emigration before March 1, 2021, and it was accepted by SARB (stamped MP336(b) form), this reason could still be used until September 1, 2024 [328i, 483i]. Otherwise, “Cessation of SA Residence” must be used [328i, 483i].

Withdrawal due to Visa Expiry (Sections 3.5.16, 3.6.13):

• • • This reason is used when a member can access a lump sum benefit because their visa has expired or been cancelled [345b, 346 Note, 498b, 499 Note 1].
    • This typically applies to specific types of visas defined in the Immigration Act [345b, 498b].
    • Important: The withdrawal can only be applied for once the visa has expired or been cancelled. SARS will not process it otherwise [346 Note, 499 Note 1].

Required Documents:

• • • Certificate of Residence (as above) [347i, 500i].
    • Copy of your passport showing exit from South Africa [347ii, 501ii].
    • Copy of your visa showing its expiry date and the relevant Immigration Act paragraph, OR a “Visa / Permit Compliance and Cancellation of Visa” letter from the Department of Home Affairs [347iii, 501iii].
    • Two-Pot System Impact (from September 1, 2024): If you meet the visa expiry rule, you can access the full value of your Vested Component and Retirement Component as a lump sum. The Savings Component can only be accessed as a “Savings Withdrawal Benefit” [345c, 499c].
    • The “Two-Pot” Retirement System (Big Changes from September 1, 2024!)
    • This is a major overhaul of how retirement savings work in South Africa. For the bot trainee, understand these new components and how they affect lump sum payments and transfers [11i].
    • Effective Date: This system officially starts on September 1, 2024 [11i].

The Three Components:

• • • Vested Component: This is your “old money” – the total value of your interest in the fund as of August 31, 2024. From this, 10% (capped at R30,000) is moved to your Savings Component as “seed capital” [11iA]. The remaining balance in this component is NOT affected by the new two-pot system rules for lump sum payments [11iAii].
    • Savings Component: This is your “new withdrawal pot” [11iB].
      • From September 1, 2024, one-third (1/3) of your new retirement fund contributions will go here [12i].
      • It also includes the once-off “seed capital” (10% of your Vested Component, capped at R30,000) [12i].
    • Withdrawals: You can withdraw from this component once per tax year. The minimum withdrawal is R2,000, up to the maximum value in your Savings Component [12ii].
      • If you terminate your membership, you can make a second withdrawal of R2,000 or less in that tax year, even if you already made one [13iii].
    • At Retirement: Any remaining balance in your Savings Component at retirement can be taken in cash as part of your lump sum benefit; it’s not subject to compulsory annuitisation (turning it into a regular pension) [13iv, 97B, 103vi, 108D, 108E, 112B, 152ii, 156, 157, 161iii].
    • Retirement Component: This is your “new pension pot” [11iC].
    • From September 1, 2024, two-thirds (2/3) of your new retirement fund contributions will go here [14i].
    • This component is generally meant for buying a pension or annuity at retirement, with exceptions [14i].
    • Cannot be taken as a lump sum before retirement: If you leave the fund (resignation, dismissal, withdrawal, retrenchment), this amount must be transferred to another fund; you cannot take it as cash [14ii, 290ii, 295ii, 300ii].

How Two-Pot Affects Transfers and Withdrawals:

• • • New “Two Pot-Transfers” Reasons (Form B, Form C): From Sept 1, 2024, specific reasons like “Two Pot-Transfers: All Components Inter-Fund Transfer” [352a], “Two Pot-Divorce Transfer: All Components (Inter-Fund Transfer)” [364a], and “Two Pot-Par (eA) Transfer/Payment: All Components (Inter-Fund Transfer)” [367a] must be used.
    • Transfers: If you transfer your entire fund value to another approved fund, all components (Vested, Savings, Retirement) must be transferred at the same time and to the same receiving fund [355d, 355dii].
    • You need to specify how much from each component is transferred [356A].
    • These transfers are generally tax-neutral (no tax is deducted at the time of transfer) [358e].

Withdrawals (Resignation, Retrenchment, General Withdrawal):

• • • If you take a lump sum AND transfer the rest, you now need two separate tax directives [290b, 295c, 300f].
    • First Directive: For the cash lump sum withdrawal [290bi, 295ci, 300fi]. This will typically include your full Vested Component (if eligible) and any portion elected from the Savings Component [290aii, 290aiii, 295aii, 295aiii, 299iii, 299iv].
    • Second Directive: For the compulsory transfer of the Retirement Component (which cannot be taken in cash before retirement), and any remaining Vested or Savings Components to a new fund, using the new “Two Pot-Transfer” reason [290bii, 291iii, 295bii, 296iii, 300bii, 301iii].

Retirement from Pension/Provident Funds:

• • • You can take up to one-third of the non-vested value in your Vested Component as a lump sum [99g].
    • Plus, you can take the full value of your Savings Component in cash [99g, 103vi].
    • The rest (remaining Vested Component and full Retirement Component) must be used for an annuity/pension [96e, 97A, 99g, 180iii, 182ii].
    • Important Exception (De Minimis Rule): If the sum of two-thirds of the non-vested value in your Vested Component plus the full value in your Retirement Component is R165,000 or less, you can take the entire amount (Vested and Retirement Components) as a lump sum in cash, along with your Savings Component [97A, 100ii, 108I, 111A, 153C, 154, 155, 156, 158, 159, 160].

Provident Fund Vested Rights (Post-March 1, 2021 Changes):

• • • The new system clarifies how “vested rights” (money accrued before the “two-pot” alignment) are handled. This is complex, but generally, pre-March 2021 contributions and growth, especially for members 55 or older on March 1, 2021, remain not subject to compulsory annuitisation (meaning they can be taken as cash) [101iv, 102, 103, 104, 105, 109ii, 189b, 190b, 195c].
    • However, if you transfer to a different provident fund after March 1, 2021 (or Sept 1, 2024 for two-pot), you might lose this full protection for new contributions or growth from that transfer date [106A, 106B, 107].

Retirement Annuity Funds (RAFs) at Retirement:

• • • Similar to pension/provident funds, you can take up to one-third of the non-vested value in your Vested Component as a lump sum, plus the full Savings Component [440d].
    • The same R165,000 “de minimis” rule applies for RAFs from Sept 1, 2024 [441ii, 516e].
    • Other Important Reasons for Lump Sums (Brief Overview)
    • Retirement (Form A&D, C): When you reach retirement age and choose to take part of your benefit as cash and/or buy an annuity [92a, 439a].
    • Retirement Due to Ill-Health (Form A&D, C): Similar rules to normal retirement, but based on the fund’s ill-health provisions [113b, 445b].
    • Death Before Retirement (Form A&D, C): The total value can be taken as a lump sum [114a, 447a]. If beneficiaries want an annuity, their details are needed [116e, 239ix].
    • Death Member/Former Member After Retirement (Form E): For lump sum payments from annuities after the member has died [575a]. The application is in the name of the deceased member [575a].
    • Voluntary/Involuntary Transfer Before Retirement [Par 2(1)(c)] (Form A&D): For transfers of benefits before retirement to another fund, especially if you’ve reached retirement age but haven’t formally retired [122a, 129a]. These are generally tax-neutral transfers (no tax deducted) [125b, 130b]. The full benefit must be transferred [126iii, 132iii].
    • Resignation (Form B): When you resign from employment and want to take your benefit in cash or transfer it [289a].
    • Withdrawal/Winding Up (Form B): For withdrawing from a preservation fund before retirement or if the fund is being wound up [293a].
    • Termination of Employment (Retrenchment) (Form B): When employment ends due to the employer ceasing trade or redundancy [297a].
    • Discontinued Contributions (Form C): For Retirement Annuity Funds when contributions stop and the fund value is below a certain limit (R15,000 from 2021 budget) [461a, 462b].
    • Divorce (Form B, C): For benefits awarded due to a divorce order. Since March 1, 2009, the tax directive is in the non-member spouse’s name [288a, 365d, 469a]. The benefit can be transferred or taken in cash, but not split (part cash, part transfer) [274f, 289c, 470c].
    • Security of Mortgage Bond Order/Housing Loan (Form B): For deductions from your fund for housing loans or other debts (like employer compensation claims for theft) [306b, 307c]. This amount is taxable in your hands [307c]. A second tax directive might be needed for “tax-on-tax” [309f].
    • What Happens Next: After You Apply
      • Tax Directive (IRP3e): Once your application is processed successfully, SARS will issue a tax directive. This notice tells the fund how much tax to deduct [324a, 624a].
      • IT88L (Third Party Appointment): This is a separate notice attached to the tax directive. It instructs the fund to deduct additional outstanding tax amounts (like for assessed tax or provisional tax) that you owe SARS [627a, 628ii].
        • Important: The amount on the IT88L is NOT reflected on your IRP5/IT3(a) tax certificate [628ii].
        • IT88L notices are not issued for “Death,” “Death Member/Former Member after Retirement,” “Security of mortgage bond order/housing loan,” or “Transfer” directives, as these benefits may be payable to a third party or are tax-neutral transfers [629b].
        • An IT88L cannot be cancelled; you need a letter from SARS Debt Collection if the debt is settled or an arrangement is in place [630c, 630d].

Cancellation of Tax Directives:

• • • Once a tax directive is issued, it generally should NOT be cancelled. The lump sum “accrues” (becomes yours) when you make the election [631a].
    • Only the Fund Administrator/Employer/Long-term Insurer can cancel a tax directive, and only through the same channel it was submitted (e.g., eFiling for eFiling submissions) [632 Note]. You (the taxpayer) cannot request a cancellation [632 Note].
    • Cancellations are only considered in specific cases, like using the wrong reason code (e.g., “Resignation” instead of “Retrenchment”), incorrect date of birth/ID, incorrect TRN, or a duplicate application [633d, 634d, 635d, 636d, 637d].
    • If a directive is cancelled and a new one issued, and less tax is payable, the fund cannot refund Only SARS can issue refunds through the income tax assessment process [639ii].

IRP5/IT3(a) Tax Certificates:

• • • These certificates reflect the lump sum payment and the tax deducted [34a, 627a].
    • The correct source code (e.g., 3915 for retirement, 3920 for withdrawal/transfer) provided on the tax directive (IRP3e) must be used [174i, 375d]. Using the wrong code will cause your tax return to be rejected [375d].
    • If the full benefit was used to purchase an annuity and no cash lump sum was taken (amount is R0), no IRP5/IT3(a) certificate should be issued [175j, 578i, 588i]. If one is issued, your return will be rejected [175j, 444i, 446i, 450i, 578i, 588i].
    • If the lump sum is greater than R0 but less than R1, the certificate should show R1 [175j, 445ii, 447ii, 589ii].
    • Additional Lump Sums (“Agterskot”): If you receive an additional lump sum after the initial payment (e.g., due to an incorrect calculation), the original directive is NOT cancelled. A second tax directive for the additional amount must be submitted [643a]. For pension/provident preservation funds, a second withdrawal from the same fund is generally not allowed [646d].