By Lesley Campbell
A LITTLE known piece of EU legislation is set to come in to force in January next year which may catch out a number of innocent British citizens.
The directive aims to identify citizens of EU member states who are avoiding tax by keeping funds offshore.
It raises, yet again, the complex question of tax evasion versus tax avoidance. There is nothing illegal about having legitimately-earned money in an offshore bank account and earning interest on it. What is illegal is neglecting to declare the interest to the Inland Revenue and not paying tax on it.
The aim of the EU directive is "to enable savings income in the form of bank interest made in one member state to beneficial owners who are resident in another member state to be made subject to taxation in accordance with the laws of the latter member state".
This means that from January onwards, each EU member state will be obliged to tell the others if they have any bank accounts belonging to their nationals.
While the new measure is designed to make sure that funds are subject to taxation, it is also part of a broader initiative to curtail money-laundering, to track the proceeds of drug-dealing and identify the source of money used to fund terrorism.
Experts anticipate that it will flush out British holders of bank accounts who may be unaware of the law as it stands and as it will stand next year.
Some may genuinely believe that income earned offshore is not subject to UK tax while some may have set up accounts simply to facilitate overseas transactions - owners of time-shares, owners of businesses with overseas trading partners, ex-pat workers with offshore assets who return to the UK to live.
Tax specialist Douglas Baillie of the Douglas Baillie Consultancy in Scone, recommends that anyone with an offshore bank account gets specialist advice as soon as possible.
"In most cases, individuals with money offshore should bring it back to the UK and declare it.
"Get advice, then offer a deal to the Inland Revenue," Baillie said. "They don’t want to spend their time chasing people all around the world.
"But do take action, otherwise you will be facing penalties, interest charges and possibly a criminal conviction."
Non-payment of interest is not the only problem. Inevitably, questions will be asked about the origin of the capital and whether or not tax was originally paid on it in the UK.
Independent financial adviser Alan Steel feels that overseas property owners are most likely to get caught in the net, some of whom may have sold a property and deposited the proceeds.
"If you do have an overseas bank account, don’t forget about it or you will suffer the consequences," he said.
"It’s never been easier to pay for goods abroad - you can use cash machines and plastic - why bother with a bank account?"
Baillie agrees that leaving money undeclared in an offshore bank account is a bad way to manage tax liabilities. "In most situations, a specialist can give you advice on how to keep the tax bill to a minimum. Cash is a hopeless commodity and non-disclosure is certainly not an effective way to reduce tax."
To the surprise of many, the new measures are also being adopted by some non-EU states including Switzerland, the Channel Islands, Bermuda, Cayman, Gibraltar and the Isle of Man, all formerly renowned for their banking secrecy.
The name is bond...
LAST week’s article discussed the fact that bonds are generally considered to have a lower risk profile than shares.
It is apparent from correspondence that a number of investment products labelled bonds have performed in a manner which has surprised their owners.
A stockbroker offered the following definition of the term: "A bond is a certificate issued by a government or a public company promising to repay borrowed money at a fixed rate of interest at a specified time."
Investors buying into products labelled bonds often have the notion that there is a guaranteed element. This is the case for a government or corporate bond, but not if investors move into a different sector of the financial arena.
This, apparently, necessitates learning a whole new language. Scottish Widows, which produces a range of investment bonds, explained what the term means to it: "A bond is a single premium life assurance policy."
Its kind of bond is an umbrella and the investor’s cash is invested in one, or a number, of investment funds underneath it.
Unlike the other kind of bond, there is no guaranteed rate of return over a proscribed period and payouts depend on the performance of the funds.
Investors would be well advised to ask which kind of bond they are buying into, since there is a major difference. With one, they know exactly what’s going to happen, with the other, they have absolutely no idea at all.
Source: The Scotsman
