offshore

jamescredmond

I've just read an advertisement about offshore savings. switzerland is being sold as an ideal destination for your money. although signed up to the eu savings tax directive the authorities will not disclose individual identity/ banking behaviour. there is a one - off start up payment of £245 with zero maintenance charges if the account remains in credit to the tune of 1000 euro's. whilst the interest rate is pretty low would this type of account be appropriate to anyone who wished to keep his/her financial arrangements away from the prying eyes of the uk taxman? say someone who was wealthy (and old )enough to worry about Inheritance tax or being shunted into a retirement home at 25k p.a ?
there must be thouands of offshore schemes out there - even for the small guy - but are they worth it and do any come with guarantees of capital security?

dunstonh

There are legal ways to reduce liability and I wont take part in a thread that is discussing breaking the law.

Chrismaths

No, this is not worth it - it would constitute tax evasion unless the income was declared to HMRC, which would negate the entire point.

If your intention is to evade tax, then this simply isn't worth it, and is highly illegal. However there are plenty of ways to minimise tax in a perfectly legitimate way. Taking the offshore option, for a high net worth individual, it is often worth setting up an offshore insurance bond. In these, there is no tax to pay (apart for non-reclaimable tax like the 10% tax credit), and you can withdraw 5% of the initial capital tax-free per year until you use up 100% of the initial capital. You can invest into most collectives (UTs, OEICs, UCITS funds), although not direct equities if you are uk resident.

You pay tax on any withdrawals in excess of the allowance, or on cashing in part of the bond at a profit, although there are many ways to mitigate this, including assigning parts of the bond to other people, and such like.

The location of the assets is irrelevant to a UK domiciled investor, you pay IHT on your worldwide assets. The main two ways currently to avoid it is by either giving away your assets, or by using business assets relief (some AIM shares, unquoted companies etc.) As to retirement home fees, it's even harder - if the person with the wealth is seen as deliberately depriving themselves of the assets, then the council won't pay.

As to guarantees of capital security, this is a different issue. The arrangements I have described are to do with tax wrappers, the capital guarantees come from the investments within them. You could use an offshore bond to invest entirely in cash if required.

jamescredmond

dunstonh wrote:

There are legal ways to reduce liability and I wont take part in a thread that is discussing breaking the law.

thank you for clarifying one crucial point that the ad doesn't mention - illegality. incidentally, I am certainly not in a position to even consider this option and neither is anyone else that I know. this is 'thinking out loud' stuff
based on info received from what appeared to be a 'heads up' ad.
not every ifa may possess your integrity/savvy and I'm pleased you responded; however, please try to suffer financial fools like me gladly!

EdInvestor

Chrismaths wrote:

... for a high net worth individual, it is often worth setting up an offshore insurance bond. In these, there is no tax to pay (apart for non-reclaimable tax like the 10% tax credit), and you can withdraw 5% of the initial capital tax-free per year until you use up 100% of the initial capital. You can invest into most collectives (UTs, OEICs, UCITS funds), although not direct equities if you are uk resident.

Ordinary basic rate taxpayers should note that there is no tax to pay on dividend income from shares or equity funds, and you only become eligible for capital gains tax if you sell shares/funds and make profits in excess of almost 9,000 a year, anything iunder this level is tax free. These insurance bonds have very high charges and are usually best avoided.

dunstonh

These insurance bonds have very high charges and are usually best avoided.

Here we go again...

Inaccurate and obsolete information.

Chrismaths

Don't start Ed. 1% upfront + £87.50 per quarter isn't a big charge on decent size investment. And I did say that it was most suitable for HNWIs (as they also are for trusts, as they are non-income producing assets - would you like to comment on that as well?). This was a discussion about how to save tax using offshore investments - I demonstrated one way of doing it legitimately. I'm pretty sure you have no idea what an offshore bond does, and have jumped at the sight of an investment bond as per usual.

Don't ever describe dividends as tax-free. They are paid with a 10% tax credit which satisfies basic rate income tax liability - as they have already suffered corporation tax (usually at 30%). This becomes important when you look at people close to the border of HR tax (as a £900 dividend is £1000 of income) and especially important with people who might be claiming means tested benefits (the GROSS income generated will be taxed at 37%).

On the upside, at least you used the word "usually".

dunstonh

dividend income can also hit the age allowance increasing the tax burden for basic rate taxpayers. Another reason not to call them tax free.