Investment

10 May 2007

Reader Writes:

I have money invested overseas that I was advised to invest for tax efficiency but I understand it is no longer tax efficient to do that. What are my options?

The fact is that all money invested in deposit accounts is, and always has been, subject to tax. Whether or not you will pay tax on the income from deposit/savings, depends on your income at the time.

It was commonly believed if you had cash invested offshore, that it was both tax free and confidential. This is completely incorrect. The revenue has clamped down on this and the deadline for an amnesty is looming closer.

Basically all income from building society and overseas investments should be declared to the revenue. This effectively makes offshore investment in a deposit account relatively useless as the rates are not as favourable as the UK counterpart. Add the tax impact onto that and the numbers are as exciting as a political broadcast.

If you do have an offshore account there are a number of issues you should consider:
If you have had an account you should have disclosed this to the revenue and ignorance won’t be a defence when they catch up, as this is effectively evasion.

A shudder went through the industry last year when Barclay’s offshore arm was forced to hand over the names of all UK domiciled individuals with offshore bank accounts.

It was only a matter of time that the other banks would be targeted and the FT has now claimed that HSBC, HBOS, Royal Bank of Scotland and Lloyds TSB are the latest targets of the Revenue. The court case would leave these banks with no real defence and inevitably they would have to disclose this data.

You can see why they are interested as it was estimated in the Barclays case that unpaid tax of up to £1.5 billion would be reclaimed by savers who had not paid tax on interest they had received.

Whilst holding an offshore account has been fine since exchange controls were eased in 1975, the fine for evasion of the tax is repayment of the tax plus a penalty of 100% of the tax evaded!

It is quite a task for the Revenue to research and analyse this data so they have declared a short term amnesty. This will enable them to flush out those who want to come clean and cut the need for expensive time and research.

It is important to note that to take advantage of the amnesty a full disclosure of all undeclared liabilities, not just those connected with an offshore account, will need to be made.

The incentive from the revenue is that the penalty charged on undisclosed tax will be limited to ten percent of the amount due instead of 100%. All unpaid tax over the last twenty years will have to be repaid however – along with interest.

If you are thinking you have time, unfortunately the offer is only available for a short period. You have until 26th of November 2007 to make payments. The offer is also accompanied by a nice hint (harsh warning) that post this date, penalties will be a minimum of 30% of undeclared liabilities – but are likely to be much higher. 1.

Tax payers must remember they have until the 22nd of June to make a disclosure to the revenue. There won’t be any penalties of untaxed amounts of less than £2500. The revenue has said they will then make a decision on whether or not full disclosure has been accepted by the 30th of April 2008. 1.

Those investing in Swiss offshore bank accounts need not worry as holders of Swiss bank accounts will not lose their anonymity because the banking secrecy laws inhibit HMRC´s ability to extract information.

Tip: You could consider investing in an offshore bond and then holding a deposit account within it. This would grow free of tax and is perfectly legal. Of course you have the cash ISA which allows for interest to grow free of tax.

Source 1- www.shelteroffshore.com April 2007

Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
All information is based on our understanding of current tax practices, which are subject to change.
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