EU Savings Tax Directive / Retention Tax

shroffn

Any experts out there on the EU Savings Tax Directive which came into force June 2005? I have some savings in an offshore account in Guernsey and was under the impression that as long as the investment income remained offshore, it was not taxable. WRONG! I have paid 15% 'retention tax' on the income generated (interest) in the last tax year. How do I go about reclaiming this money and how can I avoid it happening again without declaring my holdings to HM Revenue & Customs?

Any help much appreciated.

Cook_County

I am indeed somewhat of an expert on the EUSTD.

The UK charges income and gains to tax on a worldwide basis if you are domiciled within the UK.

If you are domiciled here then the interest is taxable in full, less a credit for the 15% withholding tax.

Interestingly the UK will repay the 15% even if you ae a non-taxpayer.

If you have failed to declare interest credited in previous tax years then (assuming you are domiciled here) you will need to declare this to HMRC as soon as possible; certainly before they find you.

Don't forget that as of today the Revenue will be raising £1.5 billion from Barclays offshore customers (does that mean the rest of us can pay less tax?)...http://www.thisismoney.co.uk/tax-advice/article.html?in_article_id=408759&in_page_id=11

ManAtHome

Isn't the withholding tax due to go up in stages over the next few years - sure I saw a final figure of 35% or so.

Cook_County

Correct - for those who pay it, it is increasing. It can however be opted out of (in Guernsey for example) by agreeing to exchange of information.

farcry

Is it recomendable for non-EU based expats to close offshore accounts upon returning to the UK? Is there any advantage to keeping them open?

Cook_County

The last post is ALMOST right.

If you are a Brit abroad it is almost always advisable to bank overseas.

However, you MUST close the account at least the day before returning to the UK or the UK will charge you to tax on interest accrued (but not credited) before you came back to the UK.

There are occasional reasons for not doing this, e.g. where the host country tax rate was greater than the UK tax you would save.

I recommend a qualified UK tax adviser before you come home.

shroffn

Thanks Cook_County (how do I thank you the MSE way?). If I disclose my offshore holdings via my offshore bank (which is affiliated to a UK bank but not part of it) is it fair to assume then that I should expect to be taxed on investment income at my marginal rate (obviously 40%) from here on in? Are there any places or vehicles in which a UK resident could park money offshore and minimise his tax liability?

Cook_County

Holding offshore bonds can save tax in some circumstances. Beyond that banking offshore is often a matter of convenience or interest rates...

Chrismaths

Many of our clients use offshore bonds to save tax. Once you get over £100k, there is no reason to use on onshore one really.