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Revenue gains access to Offshore
Accounts
(29/5/2006)
'Should five per cent appear too small, be thankful I don't take it all.' So sang The Beatles in their song Taxman, disgruntled at the 95% top rate of income tax they had to pay back in the 1960s. Now, more than 110,000
UK residents who bank with Barclays are going to get a similar feeling.
This month, the Revenue & Customs (HMRC) will be given details of the bank's offshore accounts in places like the Isle of Man, Jersey and Guernsey. The Revenue & Customs estimates it will soon be able to scoop up £1.5bn ($2.84bn) in unpaid tax, interest and penalties from Barclays customers alone.
Why is this happening?
HMRC could barely disguise its glee at the legal victory it won at a hearing before the Special Commissioners in February. The Commissioner, John Avery Jones, decided the tax authorities could demand that Barclays hand over the names and addresses for the offshore accounts of UK customers, along with transaction details for six selected months going back over the last six years.
Will the same happen to my offshore bank?
A Revenue spokesman admitted that similar approaches were now likely to be taken
towards other big banks. `We are quite likely to take this forward` he says,
'This is a very big project for us. There is a lot of tax at stake.'
Last year, HMRC, prompted by the desire of Chancellor Gordon Brown to cut down on tax evasion, set up a special unit called the Special Civil Investigations Offshore Fraud Projects Group. Its director presented evidence to the Special Commissioners that hundreds of millions of pounds of interest had been accruing on deposits, which the account holders had failed to declare on their tax returns.
Is this the end of offshore confidentiality?
Barclays still advertises confidentiality as being one of the main advantages of having an offshore account. That is about to evaporate.
When Barclays hands over the information, it will be ‘parcelled’ out to local tax offices. They will check if the people have been declaring interest on their offshore accounts, or if they can explain unusually large amounts of money that do not seem to tally with their previously declared earnings.
Neither the Commissioners, Barclays nor HMRC will reveal exactly how many individuals could be investigated. But the adjudication said they came to more than the number of UK residents who pay tax on foreign earnings. That suggests at least 110,458 Barclays customers alone.
Will this affect me?
Not straight away. The ruling has come after the introduction of the European Savings Directive last year which only affects those resident in the European Union.
The Directive means that banking authorities in offshore locations now have to either impose a 20%
'withholding' tax on the of offshore accounts of their EU resident account holders, or send details of the money back to those customers' domestic tax authorities. The difference now is that HMRC will be able to trawl back through records for the last six years.
Whilst you are resident outside the EU, your offshore savings accounts can continue to grow tax-efficiently without any reporting or withholding tax. However, when you return to an EU member state, your bank account will become taxable.
I intend to return to an EU country, what can I do?
For those returning to an EU country (whether in the near future or longer term), the only remaining option for those wishing to benefit from tax efficient growth is an offshore investment bond.
What is an Offshore Investment Bond?
An offshore investment bond is essentially tax-efficient ‘wrappers’ provided by life assurance companies (such as Aviva (Norwich Union), Friends Provident International, Generali International, and Scottish Life International) through their offshore entities in the British Channel Isles and the Isle of Man.
Within the ‘wrapper’ you can hold a wide range of assets from cash and capital protected investments to a wide range of unit trusts (such as cash deposit, fixed interest and bond funds, to managed equity funds, to specialised unit trusts investing specifically in property, hedge funds or specific markets) stocks and shares.
Why aren’t these offshore bonds taxed like offshore accounts?
Within the ‘wrapper’ any disposal of an asset is treated as an internal switch of asset classes (i.e. from shares to cash) and this does not create a tax liability. Likewise, any growth from the assets within the bond is kept within the wrapper (gross roll-up) so this does not create a tax-liability either.
There can also be additional tax benefit in some countries. For example, if the bond is structured correctly, those resident in the UK can draw an income of up to 5% of the bonds (original) value each year (for 20 years) without any income tax liability. This is on top of their normal tax allowances.
Are there other benefits of using an offshore bond?
For those looking to invest in offshore, it can also cheaper to buy and sell shares and funds through the wrapper as the product provider can complete the transaction at institutional rates; i.e. no brokers’ fees or bid-offer spreads which can often be as much as 7% of the assets value.
Can I access my money within the bond?
Most offshore investment bonds allow you withdraw up to 10% of their value each year penalty free. However, some bonds access to up to 85% of the investment from day one.
How do I get further information on Offshore Investment Bonds and/or the EU Savings Directive?
Just click the ‘contact me’ button below, type OIB and/or EUSD in the comment box (along with any other information you wish to provide) and submit with your name and preferred contact details. We will then email you fact-sheets on the requested topics.
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