Investment havens are not a tax paradise

while Anthony Bailey examines the new system and warns would-be tax avoiders to take advice before going offshore

WITH Labour hotly tipped to win the next election, more and more people are likely to consider putting money offshore in places like Jersey and the Isle of Man to avoid tax.

However, for people of relatively modest means there is likely to be at most only a marginal benefit in doing so. "Any offshore investment will have to justify itself on investment criteria alone," says Jane Seymour of accountants Clark Whitehill.

Many funds are legally based offshore. But they are often run from the City of London by well-known firms that also sell unit trusts and investment trusts based in the UK.

One reason for UK residents to go offshore is for greater investment flexibility than that which the regulatory authorities give to unit trusts.

For example, you may want to invest in something with a higher-than-average risk for greater returns, such as a hedge fund run by the likes of George Soros. But if you count as a UK resident for tax purposes and you are "domiciled" in the UK, you have to pay UK tax on your income and gains wherever in the world they arise.

However, that is not to say there are no tax advantages in going offshore.

Offshore roll-up funds do not pay out a dividend but reinvest interest and other income in the fund. These funds can provide compound growth tax-free until you cash them in. But any return from the investment would then be liable to UK income tax. If you are currently a higher-rate taxpayer but expect to become a basic-rate taxpayer on retirement, the eventual tax bill will be lower.

If you are planning to move abroad and will become non-resident, postponing cashing in the investment until you have left the UK will mean you escape UK tax. However, there may well be tax due in the country in which you end up living.

Anyone tempted by offshore investments needs to consider that there may be an extra risk from slacker regulation. Investor compensation schemes may be less generous than in the UK.

There are two categories of people who might get significant tax advantages from offshore investing, Ms Seymour says. "First, someone who is resident in the UK but domiciled abroad. This person is only liable to pay tax on income and gains arising abroad when they are brought into the UK." An example here would be foreign nationals working in the UK. If they invest offshore and do not bring the money into the UK they will not be taxed.

The second category is UK expatriates. If expatriates become non-resident, investment income and gains arising outside the UK will not be taxed in the UK. But there are strict rules on what counts as non-residency and how it is achieved. You have to be outside the country for a full tax year if you are working abroad. If you are not working, non-residency may be only provisionally granted. There are also strict rules on the length of visits back to the UK if non-resident status is to be maintained. Advice is crucial, as it is for anyone about to return to the UK.

"Some people can benefit from investing outside the UK. But tax should be only part of the consideration. You should not make any decisions until you have consulted a professional adviser and your domicile and residence status have been checked to ensure you avoid unexpected tax charges," Ms Seymour says.

PROMOTED VIDEO
Arts and Entertainment
musicBand's first new record for 20 years has some tough acts to follow
News
peopleAt least it's for a worthwhile cause
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
News
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Life and Style
healthFor Pure-O OCD sufferers this is a reality they live in
Life and Style
Sexual health charities have campaigned for the kits to be regulated
healthAmerican woman who did tells parents there is 'nothing to be afraid of'
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments