If you want to be sure - go offshore

Palm-fringed islands are not just for sunbathing: John Burke explains how to beat the taxman

TESSAs are expiring and ISAs are not as generous, but offshore, there is still a chance to get a safe income free of tax.

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TESSAs are expiring and ISAs are not as generous, but offshore, there is still a chance to get a safe income free of tax.

Girding the earth are more than 52 hideaways, some of which - such as Malta or Cyprus - are near enough for opening an account while on holiday. And it is even easier than that. Four dependencies around Britain's coastline have high street banks and building societies that provide legitimate investments not only for expatriates but also for people living on the mainland. And these branches or subsidiaries pay gross interest to both local residents and depositors across the water.

Salaries paid abroad should certainly go into a bank where the balance attracts either no (or low) tax at source. Savings should also be transferred to a haven by anyone who will be abroad before becoming liable for tax in the current year.

It might also pay two other categories of earner to use a treasure island for their income or nest-egg. One is the self-employed, especially high earners. The other is someone of non-British origin who happens to reside in the UK rather than being domiciled here.

None of this is tax-evasion; it is about either avoiding it or deferring it. If you are going to work abroad or else due to come back, note that less than 183 days in the tax-year do not count as residence in the UK for the Inland Revenue. Alternatively, annual visits averaging up to 90 days during a maximum of four years are also allowable, while seamen get a separate concession. Read the leaflet IR.20 entitled Residence and non-residence - liability to tax in the UK and seek professional advice.

People whose homeland is the UK normally face tax. But not if there was a deduction by a country like Switzerland that has a treaty with Britain against double taxation; and not if the saver is untaxable anyway.

It is just possible that a jobless person might do better to keep savings such as a pay-off or inheritance offshore. And the same could apply to someone made redundant who has a year or two to go before retirement, especially if this will take him or her down to a lower or non-taxed bracket.

Where there is only the possibility of deferring tax, the trick is to re-invest the interest for 18 months between declaring it and sending the taxed portion to the Revenue by its deadline. Cunningly, some offshore accounts as well as fixed-rate bonds give the option of March of April for crediting interest, so the latter date provides the window of opportunity.

With lump-sums, it may be a case of buy while stocks last. The fiscal paradise that stretches from the Bahamas to Brunei and from St Vincent to Samoa is under the global spotlight as never before. No less than 20 inter-governmental bodies are looking at most of the havens in order to combat drug-running, tax-evasion and money-laundering. The Organization of Economic Co-operation and Development (OECD) is to publish a report in June that will encourage a clamp-down.

The European Union is already pushing for a single 20% to be deducted from all interest and dividends within any member-nation for switching to the investor's local tax-office. It would then be no advantage to keep money in Luxemburg rather than Liverpool.

This pressure is being resisted by Gordon Brown and Dawn Primarolo who may still use the Edwards Enquiry of 1998 to restrict dealings between the mainland and the Channel Islands or Isle of Man. As fiefs of the Crown, these are outside either the UK or EU. In the past two decades, the Isle of Man has grown enormously as a financial centre so that there are now 53 banks. Even the local Isle of Man Bank belongs to National-Westminster.

Among the three building societies there is Nationwide International whose 10 types of overseas account are typically stepped and include one with instant access and another at six months' notice. The former pays 4.40% on £10,000, while on £50,000 the latter earns 5.90%. Carl Gandy at Nationwide says, "We do not know how many depositors with mainland addresses really work overseas, but our gross interest also benefits many people living in the UK on foreign passports. Some should check out how they can escape either income-tax or capital liabilities through offshore accounts."

High street banks have offshoots not only on the Isle of Man but also in the Channel Islands. Among them is Halifax International which holds part of the £107 billion banked in Jersey. There too, interest is paid gross for the depositor to declare in their homeland. Guernsey's contingent includes Co-operative Bank and also Yorkshire Building Society which has just raised its rate. It now pays up to 5.25% with instant access, while at two months' notice the rate climbs to 5.85% in five steps up to £100,000 plus.

Portman's offshore building society is on Alderney, while the Newcastle has chosen Gibraltar, as has Norwich & Peterborough. Led by Barclays, the clearing banks are also to be found in other British dependencies such as Grand Cayman, which boasts 538 banks, and in ex-colonies. HSBC is in Hong Kong.

Coutts has an outlet in Dubai, but the hazards of the more exotic havens can be politically and financially hazardous - hence the current scrutiny by great and good bodies like the World Bank. Even smaller Swiss banking-houses have failed, so the only guarantee is whether the parent is a Blue Chip in the City or Wall Street.

By contrast, the Manx Government has promised compensation for 75% of deposits since 1991. This was in response to the collapse almost two decades ago of the SIB, founded with profits from fish-bars up North! Jersey and Guernsey have no such scheme but allow in only banks among the world's top 500.

"We are as strict as the City!" Thus spake Jersey's financial regulator, Colin Powell OBE, to the British Banking Association during its recent forum about the threats from the OECD and EU.

That apart, our own Building Societies Act of 1986 requires them to bail out subsidiaries abroad, so even those in Gibraltar and the Gulf are as safe as their parents here. Some depositors also hedge their bets by going into another currency such as the dollar. Many offshore banks provide this choice - even a basket of currencies - while Nationwide can offer the euro.

Savings and current accounts are not the only services offered inCrown dependencies and centres far and wide. The Isle of Man specialises in life policies for expatriates, for example, while the Channel Islands are concentrating more on mutual funds.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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