Diversify
Without the
Tax Bill
Transfer your concentrated SA shares into a diversified local equity fund, deferring Capital Gains Tax entirely. A legal, time-limited opportunity under Section 42 of the Income Tax Act.
Time remaining before Section 42 rollover relief for CIS transfers is removed:
Deadline: 31 December 2026
The Problem
Concentrated
Positions Carry
Hidden Risk
Many South African investors hold large positions in a single listed company, often inherited or accumulated over decades. While these shares may have performed well, they represent a significant concentration risk.
The dilemma: Selling to diversify triggers Capital Gains Tax on the full appreciation. For shares held over many years, this can mean a tax bill running into millions of rands, effectively locking investors into a single-stock position they know is too risky.
Single-Stock Risk
One company event, one sector downturn, or one regulatory change could wipe out a significant portion of your wealth.
CGT Lock-In Effect
The larger the unrealised gain, the bigger the tax bill on sale, creating a perverse incentive to hold an increasingly risky position.
The Solution
Section 42
Asset-for-Share
Transfer
Income Tax Act, No. 58 of 1962
Section 42 of the Income Tax Act allows you to transfer your shares to a Collective Investment Scheme (unit trust) in exchange for units in that fund, without triggering any Capital Gains Tax. Think of it as swapping your single key for a master key that opens many doors.
How It Works
Your Shares
Concentrated position in a single listed company
Section 42 Transfer
Tax-free transfer into a local equity fund (CIS)
Diversified Fund
Units in a diversified equity fund, CGT deferred
No CGT Triggered
The transfer qualifies for rollover relief. You pay zero Capital Gains Tax at the point of transfer.
Instant Diversification
Your single-stock exposure is replaced with a professionally managed, diversified portfolio of SA equities.
No STT Payable
Securities Transfer Tax is also not triggered on the in-specie transfer into the fund.
The Difference
Sell vs. Transfer
Sell on the Market
Example: On R10m of gains, you could pay up to R1.8m in CGT immediately.
Section 42 Transfer
Same R10m of gains: R0 tax now. You keep your full capital working for you.
The Outcome
From One Share
to a Diversified
Portfolio
Once your shares are transferred into the fund, the portfolio manager can rebalance the holdings across multiple sectors and companies. Because a Collective Investment Scheme is exempt from CGT on asset disposals within the portfolio, this rebalancing happens without further tax consequences.
Professional management by experienced fund managers
Broad market exposure across sectors and companies
CGT deferred until you choose to sell your fund units
Liquidity preserved — sell units when you need to, on your terms
The Deadline
Why Act
Before
31 Dec 2026
The 2025 Taxation Laws Amendment Bill removes Section 42 rollover relief for transfers into Collective Investment Schemes, effective 1 January 2027. This means the window to execute a tax-free share swap is closing.
Section 42 Available
SARS Binding Private Ruling 344 (June 2020) confirmed that transferring listed shares to a CIS portfolio qualifies for Section 42 rollover relief. This has been the legal basis for tax-free share swaps.
Treasury Announces Change
The 2025 TLAB proposes removing Sections 42 and 44 rollover relief for CIS transactions. After industry consultation, Treasury postponed the effective date to 1 January 2027, providing a final window of opportunity.
Your Window of Opportunity
This is the remaining period during which you can execute a Section 42 transfer and defer CGT. Anchor Capital can facilitate this process for you.
Window Closes
Section 42 rollover relief for CIS transfers is removed. Any transfer after this date will trigger full CGT liability.
Common Questions
What You
Need to
Know
Who is this suitable for?
This strategy is ideal for investors holding a large, concentrated position in a single JSE-listed company — particularly shares that have appreciated significantly over time, creating a substantial unrealised capital gain. Common examples include inherited shares, long-held blue chips, or shares received through employee share schemes.
Do I lose control of my investment?
You exchange your shares for units in a professionally managed equity fund. While you no longer hold the individual shares directly, you retain full ownership of your fund units and can sell them at any time. The fund manager handles the diversification and ongoing portfolio management.
When do I eventually pay CGT?
CGT is deferred, not eliminated. You will pay CGT when you eventually dispose of (sell) your units in the fund. The base cost of your units carries over from your original shares, so the full gain is preserved for future taxation — but on your timeline, not the taxman's.
What happens to dividends?
Dividends from the underlying shares flow through the fund to you as a unitholder. The tax treatment of distributions depends on their nature — dividend income, interest, or capital gains — and is taxed in your hands according to normal rules.
Is there a minimum investment size?
While there is no statutory minimum for a Section 42 transfer, the administrative and legal costs mean it is generally most practical for positions valued at R1 million or more. Speak to your Anchor advisor for guidance specific to your situation.
What are the requirements for the transfer to qualify?
The key requirements include: the market value of the shares must exceed their base cost; the shares must be held as capital assets (not trading stock); and you must receive equity shares (units) in the transferee company (fund) in return. Anchor's team ensures all requirements are met.
Take Action
Don't Let the
Window Close
Our team at Anchor Capital can assess your position, structure the Section 42 transfer, and ensure you meet all requirements before the 31 December 2026 deadline.