How Are Unit Trusts Taxed in South Africa

A unit trust is not taxed as a single thing. It hands you three different kinds of return, and each is taxed on its own rules. Interest the fund distributes is taxed as income at your marginal rate, above the annual interest exemption. Dividends the fund distributes carry dividends tax at 20%, usually withheld before the money reaches you. And when you sell your units, or switch from one fund to another, you trigger capital gains tax on the growth.

The trap most people miss is the last one. Switching between funds inside the same management company feels like housekeeping, but for tax it counts as a sale.

The three tax events

A collective investment scheme (the formal name for a unit trust) is a flow-through vehicle. It does not pay tax on the interest and dividends it earns for you. Instead it passes them to you with their character intact, and you are taxed as if you had earned them directly.

Interest distributions. The fund earns interest on the bonds and cash it holds and distributes your share. This is local interest, taxed under section 10(1)(i). For the 2026 year of assessment the first R23,800 of local interest is exempt if you are under 65, and the first R34,500 if you are 65 or older. Anything above the exemption is added to your taxable income and taxed at your marginal rate.

Dividend distributions. The fund earns dividends on the shares it holds and distributes your share. Local dividends carry dividends tax at 20%, withheld at source by the fund or its administrator before you receive the cash. You do not pay normal income tax on them again, and you do not usually have to do anything: the 20% is already gone.

Capital gains on disposal. When you sell units, the growth in their value is a capital gain. For the 2026 year of assessment you get an annual capital gains exclusion of R40,000, then 40% of the remaining gain is included in your taxable income and taxed at your marginal rate. The annual exclusion rose to R50,000 for the 2027 year of assessment (disposals on or after 1 March 2026).

Switching funds is a disposal

This is the point worth pinning down. If you move money from Fund A to Fund B, even within the same platform, you have disposed of your Fund A units and bought Fund B units. The gain on Fund A is realised on the day of the switch, and it counts towards your capital gains for that year. Rebalancing a portfolio across several funds can quietly create a taxable event you never saw as a "sale".

Reinvesting your distributions does not escape tax either. A distribution is taxed when it is declared, whether you take it in cash or use it to buy more units.

A worked example

Thabo is 40 and his salary gives him a taxable income of R500,000, which puts his top slice in the 31% bracket (the R370,501 to R512,800 band for 2026). During the year his unit trust does three things.

It distributes R15,000 of interest. This is his only local interest, and it sits below the R23,800 exemption, so none of it is taxed.

It distributes R6,000 of local dividends. Dividends tax of 20% is withheld: R6,000 × 20% = R1,200. That R1,200 is the full tax on the dividends, and it is already paid.

He then switches R150,000 out of that fund into another one. He originally paid R100,000 for those units, so the switch realises a capital gain of R50,000. Applying the annual exclusion: R50,000 − R40,000 = R10,000. The included portion is R10,000 × 40% = R4,000, taxed at his 31% marginal rate: R4,000 × 31% = R1,240.

His total tax across the three events is R0 + R1,200 + R1,240 = R2,440, of which R1,200 was withheld for him and R1,240 comes out on assessment.

Reading your IT3 certificates

Your fund sends you tax certificates each year, and SARS gets a copy. The IT3(b) lists the interest and dividends distributed to you, and the IT3(c) reports your capital gains and losses on disposals, including switches. Check the IT3(c) against your own record of any switches, because that is where an unexpected gain shows up. Declare all of it on your return; SARS matches it to the certificates automatically.

To estimate what a disposal costs you, our capital gains tax calculator works through the annual exclusion and inclusion rate on a specific gain. For the wider rules on realising investments, see the guide on tax on selling property or shares.