Readers' lives: Going offshore won't sink your tax liability
Interest in Jersey ... tax-free rent ... finding an IFA. Your financial queries answered
Sunday 16 November 1997
Like it or not, if you live in the UK you are probably 'UK tax resident' - which means you are subject to UK income tax, even on interest earned on savings outside mainland UK. If your mother counts as UK-resident, the interest on this offshore Jersey account probably faces tax.
An exception would be if her total taxable income - including the interest earned in Jersey - is less than her tax-free personal allowance. Also, if she earned interest abroad which had tax deducted at source, she would normally be able to reduce her UK tax liability by the amount of tax already deducted abroad.
In the case of offshore tax havens such as Jersey, where interest is paid gross, a taxpayer is liable to tax on the interest. Details of interest paid during the current tax year (from 6 April 1997 to 5 April 1998) should be included on the tax return your mother receives next April. If your mother does not receive a tax return she should contact her tax office and ask for one. If she is not sure which tax office covers her, she can find out by contacting any tax enquiry centre listed in her local phone book.
There was a time when something called composite-rate tax was automatically deducted at source from deposit interest in the UK. Non-taxpayers (such as people on low incomes, including non-working spouses) were not able to reclaim the tax, so they were encouraged to open gross-paying offshore accounts. Nowadays, basic-rate tax is deducted at source in the UK but non-taxpayers can reclaim the tax and, indeed, register to have interest paid without deduction of tax (ask your bank or building society for an IR85 form).
For people who are UK tax residents, the only tax advantage in opening an offshore deposit account is that there can be a period between having interest credited and paying tax on the interest. This allows you to earn a little extra interest on the delayed tax. But this tax advantage is likely to be fairly marginal for most people. The main thing to consider is whether you can actually get a higher interest rate offshore. Bear in mind that accounts opened with offshore branches of building societies don't usually entitle you to receive free shares should the society convert to a bank.
I'm about to take in a lodger. Do I have to notify the tax authorities? I understand the rent from a lodger is now tax-free.
The chances are that your lodger's income will come under the "rent- a-room" scheme. You can get leaflet IR87 from tax offices to find out whether you qualify. The scheme allows you to receive up to pounds 4,250 a year tax-free from lodgers in the home where you live yourself - roughly pounds 354 a month or pounds 81 a week. If two or more of you share rent from lodgers (as may be the case when couples or groups of singles buy a property together) the annual tax-free allowance is pounds 2,125 each. Rental income over the tax- free amount is taxable and the Inland Revenue requires it to be declared.
I need a(n independent) financial adviser. Are there services listing IFAs in my locality?
There are two free telephone enquiry services for getting lists of IFAs. Both will send their lists according to the postcode you give - so, for example, if you prefer to have an adviser near to where you work, give your work rather than home postcode. And while you get their details of IFAs for free, the IFAs are not given your details, so you do not need to worry about them pestering you.
Of the two services, the register of fee-based advisers run by Money Management, a personal finance magazine, should be your first port of call. Telephone 0117 976 9444, give your postcode and details of any specialisations you are looking for in an adviser (for example pensions, mortgages, investments). You'll then be sent six names. All will offer you the option of paying fees for any work they do for you rather than paying commission, which should give them less incentive to sell you something. Initial meetings should be free.
IFA Promotion, a marketing body for advisers, on 0117 971 1177, will also send a list of three advisers in your chosen postcode area. IFAP can supply further names, and first visits are always free. But many of the IFAP advisers will not offer the fee-based option - they will only work on commission. Last year 82,000 people called the IFAP service, of which 36,000 subsequently contacted an adviser.
Write to Steve Lodge, Personal Finance Editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number, or fax 0171-293 2096 or e-mail s.lodge@ independent.co.uk. Do not enclose SAEs or any documents you wish returned. We cannot give personal replies or guarantee to answer every letter. We accept no legal responsibility for advice given.
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I struck a chord with many of you when I wrote a piece earlier this week about rising train fares. It seems there is an army of travellers who feel they've been ripped off by increased transport costs.
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