Changes to offshore bank accounts

Many people in Northern Ireland have savings offshore - perhaps in Jersey or the Isle of Man. Others
have interest-bearing accounts in European countries, perhaps because they have a holiday home.

All people are affected by the new European Savings Directive - or ESD to its friends ? if it has
any. Its friends will mainly be tax inspectors around Europe who hope to uncover hidden millions,
and may indeed do so.

This new piece of law has been set up to ensure people pay the right tax on their overseas savings.
It provides for a massive exchange of information between countries.

My fellow columnist Nicholas Watts (the Naked Investor) laid bare the workings of the scheme in his
helpful article last week.

Regular readers of my column will know that I have often warned that the UK Revenue does hear of
savings held in the Channel Islands or the Isle of Man. This often sparks a tax investigation if the
interest has not been declared on annual tax returns.

At this stage I would like to make it clear that it is perfectly legal to have a bank account
outside the UK. What is illegal is investing money abroad to hide it from the taxman rather than
declare the income.

Also illegal (no matter where the money came from originally) is failure to declare the annual
interest your overseas savings produce. If you do not receive a tax return then the duty is on you
to write to the Revenue and advise them that you receive this income.

So how will this all affect you? It depends on where your savings are. If they are in the Channel
Islands, Isle of Man, Austria, Belgium or Luxembourg, for example, then read witholding tax option.

If your savings are elsewhere in mainland Europe then read the reporting countries section.

WITHOLDING TAX OPTION.

The countries I mentioned above, including the popular Isle of Man and Channel Islands, offer you a
choice.

Either they take tax off your interest at source, or they tell your home tax authorities. The tax th
ey will take off will start on July 1 this year at 15%, rising to 20% and 35% in 2008 and 2011.
Accepting this loss of tax will mean your interest will not be automatically notified to the UK tax
offices.

The alternative will be to ask that your interest be paid in full and the amount notified to the UK
Revenue. Your bank may ask for you to produce a tax certificate from the Revenue before they will do
this. This is obtained by supplying to your local tax office:

* your full name and address;

* your National Insurance number or, if you do not have one, your date of birth and the town and
country in which you were born;

* the account number(s) of the investment(s) you hold overseas;

* the name and address of your overseas bank, and so on;

* the period (not exceeding three years) for which you want the certificate to be valid.

REPORTING COUNTRIES

If you have money on one of the other countries then you can expect that details of your interest
earning WILL be supplied to the UK tax office. No tax will, however, be taken off the interest at
source. So long as you have declared this income then you have nothing to fear.

This new law is already concerning an awful lot of people who have money offshore. The withholding
tax option makes such savings less attractive, and the reporting option will throw out lots of names
of people who have not declared overseas income before.

This may take years for the UK Revenue to sort out, but I suspect will be a factor in thousands of
tax investigations.

If you have hidden money abroad maybe this is the time to admit it to the Revenue. Then whatever is
left (when they have been paid up) you can enjoy without fear of the future. This is serious stuff
so speak to a tax specialist rather than simply contacting the Revenue yourself.

Adrian Huston, a former tax inspector, is now a partner in Belfast tax and accountancy firm Huston &
Co.

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