Offshore accounts

utab007

What is the purpose of the EU tax savings directive?
Is it legal for a UK investor to pay no income tax on savings interest for money held in a offshore account.

Baldur

You should find all that you need to answer your questions here:

http://www.hmrc.gov.uk/esd-guidance/index.htm

http://www.hmrc.gov.uk/esd-guidance/uk-investors.htm

Theone1_2

I would like to know as well.

rockitup

Don't know if these accounts are still offered but back in 2007/08 I remember seeing "deferred interest accounts" available on A & L Offshore site.

Interest was deferred and mounted up, but not paid until the relevant account was closed....

Maybe this would be a good form of tax planning if you were planning to become a Non-Resident later, but not sure how deferred interest stands legally or if it is still available.

gozomark

utab007 wrote: »

Is it legal for a UK investor to pay no income tax on savings interest for money held in a offshore account.

A simple question, but a more complicated answer

by UK investor - I presume you mean a UK domiciled citizen, resident in the UK( if you are UK domiciled but living outside the UK, then it depends on the tax system in place in your country of residence)

If you mean no tax at source then yes, but only if you then declare it on your UK tax return as part of your income - you will be liable to pay tax if above the tax free allowances

gozomark

utab007 wrote: »

What is the purpose of the EU tax savings directive?

to stop people evading tax by depositing funds outside the jurisdiction of their country of residence and then failing to report interest earned

cepheus

For those who think tax havens are a good thing perhaps you need to read this

Tax havens offer not only low or zero taxes, but something broader. What they do is to provide facilities for people or entities to get around the rules, laws and regulations of other jurisdictions, using secrecy as their prime tool. We therefore often prefer the term "secrecy jurisdiction" instead of the more popular "tax haven."

The corrupted international infrastructure allowing elites to escape tax and regulation is also widely used by criminals and terrorists. As a result, tax havens are heightening inequality and poverty, corroding democracy, distorting markets, undermining financial and other regulation and curbing economic growth, accelerating capital flight from poor countries, and promoting corruption and crime around the world.

The offshore system is a blind spot in international economics and in our understanding of the world. The issues are multi-faceted, and tax havens are steeped in secrecy and complexity – which helps explain why so few people have woken up to the scandal of offshore, and why civil society has been almost silent on international taxation for so long. We seek to supply expertise and analysis to help open tax havens up to proper scrutiny at last, and to make the issues understandable by all.

The fight against tax havens is one of the great challenges of our age. Our approach challenges basic tenets of traditional economic theory and opens new fields of analysis on a diverse array of important issues such as foreign aid, capital flight, corruption, climate change, corporate responsibility, political governance, hedge funds, inequality, morality – and much more. (Read more in Part II of our Manifesto for Tax Justice)
How big is the problem, and what is its nature?

Assets held offshore, beyond the reach of effective taxation, are equal to about a third of total global assets. Over half of all world trade passes through tax havens. Developing countries lose revenues far greater than annual aid flows. We estimate that the amount of funds held offshore by individuals is about $11.5 trillion – with a resulting annual loss of tax revenue on the income from these assets of about 250 billion dollars

http://www.taxjustice.net/cms/front_content.php?idcatart=2

Cook_County

It is entirely legal for a UK taxpayer to hold monies outside of the UK and to pay zero UK tax, for example if taxable income is below the UK personal allowance.

shaun_from_Africa

It is entirely legal for a UK taxpayer to hold monies outside of the UK and to pay zero UK tax

Legal, but in most cases, totally pointless to do so.

I have offshore savings accounts in both Jersey and the IOM, and the interest rates payable on these are lower then those offered for equivilent accounts held in the UK. (I'm non resident in the UK so opening a new account there is almost impossible to do nowadays).

Also the depositor protection schemes offered to offshore investors are not as comprehensive as those given to holders of UK based accounts.

UK residents whose earnings are below the taxable limit would be far better off investing in the UK and either registering to get their interest paid free of tax (if this is still possible), or paying the tax and reclaiming it from the taxman.

Cook_County

shaun_from_Africa wrote: »

Legal, but in most cases, totally pointless to do so.

I have offshore savings accounts in both Jersey and the IOM, and the interest rates payable on these are lower then those offered for equivilent accounts held in the UK. (I'm non resident in the UK so opening a new account there is almost impossible to do nowadays).

Also the depositor protection schemes offered to offshore investors are not as comprehensive as those given to holders of UK based accounts.

UK residents whose earnings are below the taxable limit would be far better off investing in the UK and either registering to get their interest paid free of tax (if this is still possible), or paying the tax and reclaiming it from the taxman.

There are many valid and prudent reasons for individuals to hold accounts outside the UK. There may some kinds of products that are lower in cost in other jurisdictions (eg life insurance), not available onshore (eg protected cell companies) or in currencies or locations where people own assets or have family (eg Spain or Ireland). Now of course if you think Spain or Ireland are pointless then that is of course your right.

Loughton_Monkey

Offshore accounts are the mainstay of "Expats" - of which I was one for a number of years.

The point is, that you need to be Non Resident for Tax Purposes in UK. This is usually a formaility for anyone with a contract of employment abroad. So it doesn't normally apply to retirees, or those who simply choose to doss in Spain.

So the salary, whether from a British company or other, can get paid into the offshore account with absolutely no UK tax liability whatsoever. But that salary is almost certainly taxable in the country in which you are working abroad. Theoretically, investment income from the offshore account is also taxable in the foreign country, but I knew of nobody who disclosed this!

As of 2005 (I think - and I assume it still applies), offshore banks were forced by EEC to take off a 15% 'withholding' tax. This was very much in the spirit of UK laws where banks must routinely deduct basic 20% tax. If you qualify for tax free status, then simply filling in a from avoids the 15%. Alternatively, if you are subject to a higher tax in your European country of work, then you pay the difference by another means.

The minute you 'hit' UK again, and become subject to UK tax, then I believe investment interest is payable just as if it were a UK bank. You can 'import' the money quite easily, legally, and tax free back into a UK bank account.

The 'bottom line' is that Offshore Accounts offer no [legal] tax advantage to UK citizens, even while living abroad. Their 'selling point' is usually 99% because when living abroad, it is usually impossible to open UK savings accounts. There is no advantage (I can think of) for a 'normal' UK citizen to use an offshore account.