2026 BUDGET REVIEW
Key takeaways from the 2026 National Budget proposals to be adopted by Parliament
- Introduction
Gross tax revenue for 2025/26 is revised upwards by R21.3 billion compared with the 2025 Budget. The tax-to-GDP ratio increases to 25.9 per cent. The R20 billion in tax increases provisionally included in the May 2025 Budget has been withdrawn due to the improved fiscal position. Instead, additional tax measures to ease the financial burden on households are introduced. Personal income tax brackets and medical tax credits will be adjusted for inflation. Certain other tax thresholds and limits are also increased to account for inflation, to assist small businesses and encourage savings.
- Proposals affecting the retirement fund industry
2.1 Retirement fund contribution deduction limits
Currently, members contributing to a retirement fund may receive a tax deduction for contributions made to a retirement fund of up to 27.5% on the greater of remuneration or taxable income, but not more than R350 000 per annum. This means that a member may not deduct contributions for tax purposes of more than the annual limit of R350 000. This amount will be increased to R430 000 effective 1 March 2026.
Comment: This increase is welcomed and will encourage members to save more for their retirement through contributions to a retirement fund. There is however still considerable room for improvement considering the previous limit was set in 2016.
2.2 Retirement interest de minimis (commutation) threshold for annuitisation
Currently, at retirement, the total value in the retirement component plus the portion of the vested component that must be taken as a pension (also referred to as the non-vested portion, which is typically 2/3’s of the value in a pension fund), must be paid in the form of an annuity, except if that combined value does not exceed R165,000 (the de minimis amount), in which case it can be taken in cash. This de minimis will be increased to R240 000 effective 1 March 2026.
Comment: The adjustment will allow for more cost effective annuitisation for members with smaller retirement values. It will mean that members with retirement components plus the non-vested portion of the vested component of R240 000 or less, do not have to purchase an annuity and can commute the whole amount as a lump sum.
2.3 Living annuity commutation
The full remaining value of a living annuity may be paid in a lump sum when the value at any time becomes less than the amount prescribed by the Minister of Finance. The current prescribed amount of R125 000 will be increased to R150 000.
Comment: The commutation only applies to a living annuity as defined in the Income Tax Act and does not apply to a guaranteed life annuity. No commutation is possible in respect of a guaranteed life annuity.
2.4 Determining the application of the de minimis (commutation) limit for multiple living annuities held with the same insurer or fund
The commutation limit for living annuities described above is applied on a per-insurer or per-fund basis, whereby the value of all living annuities held by an annuitant with the same insurer or fund is aggregated when applying the limit. However, differing interpretations of the law exist regarding whether this limit applies per-policy or cumulatively per-insurer or fund. It is therefore proposed that the definition of “living annuity” in section 1 of the Income Tax Act be amended to explicitly provide that the prescribed de minimis limit must be determined cumulatively where an annuitant holds multiple living annuities with the same insurer or fund.
Comment: Clarity on this interpretation ensures consistent application of the de minimis principle across the industry and helps protect retirement income.
2.5 Unclaimed assets
Government is moving ahead with reforms to centralise the management and investment of over R88 billion in unclaimed financial assets, which include retirement benefits. The proposed framework provides for the transfer of these assets to a central administrator responsible for administration, record-keeping and tracing. The reform will be rolled out in phases, starting with the retirement fund sector, given its established identification and monitoring systems. A discussion note will be released shortly for public consultation.
Comment: This has been on the agenda for a number of years. It remains critical that sufficient time is allowed for the tracing of beneficiaries before assets are transferred to a central administrator where active tracing is unlikely to occur. Strong regulation and oversight will be essential.
2.6 Infrastructure investing
National Treasury continues to prioritise infrastructure investment with key focus on electricity transmission, transport, water, telecommunications and visas.
Comment: The fact that National Treasury launched infrastructure bonds in 2025 and raised R11.8 billion that was oversubscribed 2.2 times is of interest to retirement funds that are encouraged to disclose their infrastructure investments.
- Other matters of interest
3.1. Individuals, employment and savings
3.1.1 Limiting the donations tax exemption rules where a spouse ceases to be a tax resident
Government has become aware of arrangements where staggering of the cessation of tax residence between spouses are involved and significant assets are transferred to a spouse who has already become non-resident before the remaining spouse ceases residence. In these circumstances, the donations tax exemption applies, while the subsequent cessation of tax residence by the remaining spouse results in a reduced income tax liability. These arrangements are designed to avoid both donations tax and the income tax on cessation of residency. It is proposed that the donations tax exemption rules applicable to spouses be limited to donations made to a spouse who is a resident effective from 25 February 2026.
3.1.2 Increase in annual contribution limit to tax-free investments
Currently, contributions to a tax-free investment are limited to R36 000 per annum, which annual limit has been in place since 2021. The annual limit will be increased to R46 000 with effect from 1 March 2026.
Comment: This adjustment is welcomed to help improve savings in the country. However, it is regrettable that the lifetime contribution limit of R500 000 has not been adjusted accordingly.
3.2 Preparing for the 2026/27 Financial Action Task Force (FATF) mutual evaluation
South Africa exited the FATF grey list in October 2025. Preparations have begun for the next round of assessment, from mid-2026 to October 2027, with further legislative amendments expected to strengthen the anti-money laundering and counter-terrorism financing framework.
3.3 Implementation of an open finance framework
Open finance is the framework that allows individuals and businesses to safely share their financial data with third-party providers, with their explicit consent, in order to access better, more competitive and more innovative financial products and services. It has the potential to drive down the cost of financial services for individuals and businesses. Work continues on developing a regulatory framework for open finance, following a cost‑benefit analysis which was finalised in 2025.
3.4 Regulating artificial intelligence in the financial sector
The FSCA, the Prudential Authority and the Reserve Bank are collaborating to develop a discussion paper on the adoption of artificial intelligence (AI) in the financial sector, which will be published in July 2026. The paper will set out recommendations for the safe and responsible adoption of AI in the South African financial sector, with a view to developing a formal joint regulatory instrument.
3.5 Collective investment schemes
National Treasury will release a response document, following consultations on the taxation of collective investment schemes (CIS), with revised proposals for further consultation. The draft recommendation in the response document proposes that all investment returns generated by regular CISs and retail investment hedge funds be taxed as capital. Government will propose excluding qualified investment hedge funds from the CIS tax regime. Alternative tax regime options for these funds will be proposed in the response document.
3.6 Trade
One of the main policy objectives is to ensure that the financial sector supports regional integration and the implementation of the Africa Continental Free Trade Agreement. National Treasury is easing restrictions on the cross-border flows of capital by enabling domestic asset managers to manage portfolios of foreign assets. This will improve competitiveness and allow South Africa to function as a hub for investment into the continent.
- Personal income tax
4.1. Income tax brackets
In 2026/27, personal income tax brackets and rebates will be adjusted in line with expected inflation (3.4 per cent) – this is the first increase since 2023/24. The personal income tax brackets and rebates are increased as per the table below:
| Taxable Income (R) | 2025/26 Rates of tax | Taxable Income (R) | 2026/27 Rates of tax |
| R0 – R237 100 | 18% of each R1 | R0 – R245 100 | 18% of each R1 |
| R237 101 – R370 500 | R42 678 + 26% of the amount above R237 100 | R245 101 – R383 100 | R44 118 + 26% of the amount above R245 100 |
| R370 501 – R512 800 | R77 362 + 31% of the amount above R370 500 | R383 101 – R530 200 | R79 998 + 31% of the amount above R383 100 |
| R512 801 – R673 000 | R121 475 + 36% of the amount above R512 800 | R530 201 – R695 800 | R125 599 + 36% of the amount above R530 200 |
| R673 001 – R857 900 | R179 147 + 39% of the amount above R673 000 | R695 801 – R887 000 | R185 215 + 39% of the amount above R695 800 |
| R857 901 – R1 817 000 | R251 258 + 41% of the amount above R857 900 | R887 001 – R1 878 600 | R259 783 + 41% of the amount above R887 000 |
| R1 817 001 and above | R644 489 + 45% of the amount above R1 817 000 | R1 878 601 and above | R666 339 + 45% of the amount above R1 878 600 |
| Rebates | 2025/26 | 2026/27 |
| Primary | R17 235 | R17 820 |
| Secondary | R9 444 | R9 765 |
| Tertiary | R3 145 | R3 249 |
| Tax threshold | 2025/26 | 2026/27 |
| Below age 65 | R95 750 | R99 000 |
| Age 65 and over | R148 217 | R153 250 |
| Age 75 and over | R165 689 | R171 300 |
Source: National Treasury
Comment: The adjustment of income tax brackets and rebates provides taxpayers with relief from the impact of inflation on their tax payments for the first time since 2023/24 and is much welcomed.
4.2 Extending the eligibility for the medical scheme fees tax credit
Certain statutory medical schemes face regulatory constraints that remove them from the authority of the Council for Medical Schemes. Consequently, individual members of these schemes are not eligible for the medical scheme fees tax credit. It is proposed that eligibility for this tax credit be extended to such members, subject to such scheme adhering to governance and solvency requirements as prescribed in the Medical Schemes Act.
4.3. Medical tax credits
Medical tax credits will increase from R364 to R376 for the first two members, and from R246 to R254 for additional members.
Comment: This increase in medical tax credits is welcomed as it makes it more affordable for people to remain members of medical aid schemes.
4.4. Social grants
The old age grant, disability grant and care dependency grant will increase to an average maximum of R2 400 in April 2026, while the war veterans grant increases to R2 420. The foster care grant will increase to R1 295. The child support grant and grant-in-aid grant rise to R580. The social relief of distress grant is allocated an additional R36.4 billion to extend payments until 31 March 2027 at the current R370 per month per beneficiary.
The social grant increase is as per the table below:
Social grants
| Rand | 2025/26 | 2026/27 | Percentage increase |
| Old age | 2 315 | 2 400 | 3.7% |
| War veterans | 2 335 | 2 420 | 3.6% |
| Disability | 2 315 | 2 400 | 3.7% |
| Foster care | 1 250 | 1 295 | 3.6% |
| Care dependency | 2 315 | 2 400 | 3.7% |
| Child support | 560 | 580 | 3.6% |
| Grant-in-aid | 560 | 580 | 3.6% |
Source: National Treasury
Comment: Currently 4.199 million people over the age 60 are receiving state old age grants. South Africa has approximately 6.2 million people over the age of 60. This means that more than 70% of people over the age of 60 are receiving an old age grant.
2026 Budget Speech by the Minister of Finance