I'm asking this on behalf of a friend. 8 years ago, he sold his only house (in England) for 100K. He put the money into bonds via a bank situated in Jersey. I gather that the idea was to avoid UK tax liability on the anticipated growth. He lost a lot of the equiry around the 9-11-2000 period. Now his equity is back up to about 120K. The bank who organised the investments for him now tells him he must declare the interest/growth he makes on his money. He wants to know what to do. Should he bring the money into England and declare the growth, or is there away to avoid British tax liability?
Thanks for the input. Can you clarify basically how the rules have changed? Will the HMRC simply demand back-taxes due or will they also penalise him? Any idea of the likely penalty? Would he best-advised to declare everything he's made without delay, *before* the HMRC finds out?
There is a new EU savings directive which requires offshore banks to disclose details of accounts to the relevant tax authority in the customer's home country. A few countries that are not in the EU have also signed up to it.
At the moment, they are at the stage of sending out initial letters, so there are no reports yet of what the next stage is, but it is certainly possible that they will look for penalties.
Yes. They will always look more favourably on a voluntary disclosure.
The EU Savings Directive was assumed by the IOM & CI islands WEF from 1 July because the islands were duffed by G.Brown Esq.
The scope of the directive covers interest bearing accounts on the islands. The intended end result is that the deposit takers will report the details of gross credit interest paid back to the Revenue authorities of the country of tax residence of the depositor but in the time it takes for this system to be implemented, pan euro, they will instead (but at the election of the depositor) deduct what in all intents and purposes is a withholding tax but which, for some reason, they are calling a retention tax. This will be applied for the first three years at a rate of 15% then 20% for 3 years then 35% of the gross interest and will be deducted at source thereby removing the benefits of Gross Roll up of compounding interest. But the depositor can elect for the gross interest to be reported to UK and the retention tax will be waived although tax will be due in UK. An important point to note is that if the depositor elects for the retention tax it is collected anonymously and the details of the depositor are NOT reported to UK HMR&C.
But, if you are resident in UK (say) but domiciled elsewhere then this wont happen and you are OK unless you 'remit' the interest to UK.
Prior to 1/7/05 all the deposit takers SHOULD have checked the residency of every EU depositor so they are already into the new regime.
Please note that it is only credit interest from interest bearing accounts that are in scope of this new directive. 'Growth' is excluded as is the gains from structured products that are derivative instrument based, i.e. 5 1/2 year guaranteed bonds. Even though these pay INTEREST and are still subject to tax in UK for UK residents they are outside of scope of the EUSD.
There are some complications with certain UCITS, UTs and OEICS.
Gibraltar have cocked it all up by finding a superb loophole but Gordon is stuffing the hole as we speak.
Of course all UK residents with offshore accounts will have been reporting the gross credit interest they have received over the years as a matter of course. Initial evidence shows that the HMR&C are taking a lenient view of the past and are more concerned about the future except for the very largest of cases.
There is a work around involving a unique form of offshore life bond. But its very hard to find one that is cheap enough to be worth it with reducing interest rates. But there is just one that will work.
I think HMR&C will just go to collect future taxes unless the back taxes would be large. He must obviously declare the income. This is the best course of action because it is better to pay the tax in UK and allow the account to compound its gross interest. But tell him to find the ONE uk provider who offers the workaround, It is completely legal and it doesnt evade tax, it just defers it (potentially for ever) and is only a deferral exercise, but it works.
If they were supposed to do this, then they haven't done it very thoroughly. HSBC Jersey have never asked me for any proof of my non-EU residency. I assume they just accepted the records they previously held about my address.
It would seem easy enough just to ask them to change your address to that of a mail forwarding service outside the EU to circumvent the new rules.
That is all extremely helpful. Thank you very much! I surmise that you don't want to disclose the above-mentioned life bond provider, but could you possibly email the provider's name to me at snipped-for-privacy@yahoo.com ?
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