In short
Private lending pays interest, and SARS taxes interest as part of your income at your marginal rate — not as a dividend, and not as a capital gain. Individuals get an annual interest exemption (R23,800 under 65, R34,500 from 65). Interest above that is added to your taxable income. Because the lender is not a bank, no IT3(b) certificate is issued, so the amount has to be declared from your own records.
01 — The category
What kind of income is it?
This is the question that decides everything else, and it has a short answer: private lending pays interest. You lend money, the borrower pays you for the use of it, and that payment is interest in exactly the sense SARS means.
It is worth being clear about what it is not, because the three are taxed quite differently and people often assume the wrong one.
- Not a dividend. A dividend is a share of a company's profit paid to a shareholder, and it carries dividends tax. You are not a shareholder here; you are a lender.
- Not a capital gain. A capital gain arises when you sell an asset for more than it cost you. Interest is not a gain on disposal, so capital gains tax does not apply to the interest itself.
- Not tax-free. Unlike a tax-free savings account, there is no wrapper here that shelters the return.
In one line
Interest is added to your income for the year and taxed at your marginal rate, once the annual exemption has been used up.
02 — The exemption
How much interest is exempt each year?
South African individuals get an annual exemption on local interest. It applies to your interest from all sources added together — bank accounts, fixed deposits, private lending — not to each one separately.
Under 65
R23,800 a year
65 and over
R34,500 a year
Applies to
All local interest combined
Above the exemption
Taxed at your marginal rate
So if you already earn interest from a savings account, that interest uses part of the same allowance. The exemption is not per product and not per institution.
03 — Worked through
What it looks like on a real amount
Take someone under 65 with R500,000 placed at a prime-linked return, and assume prime sits at 10.5% with a margin that puts the return near 13.5% for the year.
What that costs in tax depends entirely on your marginal rate, which depends on the rest of your income. At 26% it is roughly R11,400; at 41% roughly R17,900. This is an illustration of the mechanism, not a calculation of your position.
Two things follow from the shape of that. The exemption matters most on smaller amounts — on R150,000 it may cover the whole return. And on larger amounts it becomes a rounding detail, because the marginal rate is doing the work.
04 — The missing certificate
Why you will not receive an IT3(b)
If you have earned interest at a bank, an IT3(b) certificate arrives each year and the figure is usually pre-populated on your SARS return. That does not happen here, and it surprises people.
An IT3(b) is issued by a deposit-taking institution — a bank. A private lending arrangement is not a deposit and the administrator is not a bank, so there is no IT3(b) to issue. That is a fact about the structure, not an oversight.
What it means for you
The interest still has to be declared. You do it from your own statements rather than from a certificate that arrives automatically, so keep the records you are sent.
05 — Other entities
What changes for a trust or a company?
Capital is often placed by a trust or a company rather than by a person, and the treatment differs in a way worth knowing before you choose.
| Individual | Trust | Company | |
|---|---|---|---|
| Interest exemption | Yes — R23,800 / R34,500 | No | No |
| Rate applied | Your marginal rate | Trust rate, unless distributed | Company tax rate |
| Certificate issued | No IT3(b) | No IT3(b) | No IT3(b) |
The exemption is an individual's allowance only — a trust or a company does not get one. Where a trust distributes income to beneficiaries in the same year, the income is generally taxed in the beneficiaries' hands instead, which is precisely the kind of question to settle with your accountant before capital is placed rather than after.
06 — In practice
What to actually do about it
- Keep your statements. They are your record of interest earned, and there is no certificate coming to replace them.
- Add up all your interest. The exemption applies across every source, so your bank interest counts against the same allowance.
- Ask about the entity before you place. Whether capital sits in your own name, a trust or a company changes the outcome, and it is far easier to decide up front.
- Confirm the year's figures. Exemption thresholds move in the Budget.
None of this makes private lending unusual. It is taxed the same way any interest is taxed. The two things that catch people out are the exemption being shared across all their interest, and the absence of a certificate.