Money held Offshore ?
Here’s a Quick Guide to the imminent EU Savings Directive
The results of a survey recently carried out by a number of UK high street banks showed that many British expats are confused about the effects of the EU Savings Directive (ESD) which comes into force on July 1st. The offshore banks and building societies have been writing to their customers in recent weeks informing them of the changes, and from the replies they have received it seems that for many people this is the first they have heard of the change.

Basically the message is that the account holder has two choices: either they must agree to the ‘exchange of information’ between the bank’s jurisdiction and their country of residence, or they will be obliged to pay a 15% retention tax on the interest earned by their money. This means that if you live in one EU country (eg Spain or the UK) and have cash in another EU country or in one of the European or Caribbean offshore centres that have signed up to the legislation (including Guernsey, Jersey, Switzerland, Monaco and the Isle of Man) you will almost certainly be affected by the legislation.

It is particularly important that those people who are already declaring their offshore savings income should inform their bank or building society that they wish to select the ‘exchange of information’ option so as to avoid incurring the withholding tax by default. However, if you do not wish to select the ‘exchange of information option’ and think that the initial ‘regular’ withholding tax of 15% is bearable then it is important to note that this will be increased to a ‘large’ 20% in 2008, and then to the ‘super size’ 35% in 2011. Taking action where appropriate now will ensure that you are not paying more than you should.

Avoiding the ESD
1. The ESD does not apply to companies, only to individuals. This means that the setting up of an offshore company, or possibly an offshore discretionary trust, through which your account is then held could be beneficial from a tax perspective. You need to consider the set up and annual running costs against the tax in order to properly evaluate this option;
2. Switch to an account which does not pay out the interest but merely accumulates it. This postpones the withholding tax or exchange of information until the account is closed;
3. Move your money to assets which hope to produce a capital gain (ie property) instead of those which produce an income. This is a risky option however and should not be considered where you need the income currently generated to live on;
4. Transfer your money to a country that is not affected by the ESD. This requires specialist advice since this could entail moving your funds to less well-regulated (ie potentially dodgy) jurisdictions.

There will be other avoidance options open according to each person’s circumstances. Basically it is essential to make sure that you do not fall foul of the legislation through ignorance. Financial matters are a dry subject at the best of times but I hope you will have a better understanding of the main points to consider.

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Information courtesy of Marc White LL.B. (English Solicitor) - Visit homepage

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