offshore savings
There is considerable confusion surrounding
offshore investments because of the perception that they are ‘tax
free.’
This may be the case if you are non-domiciled
for UK tax purposes or plan to retire outside the UK and take
income in a foreign jurisdiction.
However, for individuals who are UK resident
for tax purposes, tax must be declared on your self assessment tax
return and paid either through your tax code or along with your
other taxable income if you pay tax twice yearly.
Receiving gross interest can be beneficial in
that you do not have to pay the tax immediately (whereas basic rate
tax is deducted at source on UK bank and building society
accounts). But you are merely postponing when you have to pay the
tax.
So if you are investing offshore, it is
important that you understand the tax implications of the
investments you place your money in. You may be told that the tax
on a certain offshore investment ‘rolls up gross’ or is ‘tax
deferred,’ but this does not mean that the investment is tax free
if you are UK resident.
If you are putting money in an offshore bank
or building society deposit account, bear in mind that HMRC is
taking a close interest in offshore accounts located in the Channel
Islands and the Isle of Man for cases of tax evasion.
In 2007, five UK high street banks were forced
to hand over thousands of account details of customers with
offshore accounts. This unprecedented move led to a partial tax
amnesty in 2007 for depositors who had failed to declare tax on
offshore accounts.
Those who failed to make use of the tax
amnesty risk facing fines, penalties or even prison, particularly
if the sums owed are large and the capital deposited offshore was
untaxed income in the first place.
HMRC has said it expects to bring some high
profile prosecutions in 2008.