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All you need to know

What is it and who does it affect?
The European Savings Directive (EU STD) is European legislation (implemented on 1 July 2005) to counter tax evasion. It aims to ensure that people pay tax on their bank deposits even when the money is held abroad. It'll therefore affect all your clients who have money invested in offshore bank accounts.

What's the UK tax position on foreign bank accounts?
An individual who is tax resident in the UK is liable to tax on worldwide income and gains. Usually the tax liability arises when the interest is credited to the account, irrespective of whether the money is ever brought into the UK. So the general rule is that this interest is taxable every year anyway. The only exception is where the account holder is non-UK domiciled - in which case the interest is only taxable when the money can be treated as having been brought into the UK.

If this interest is taxable anyway, how does the EU STD change things?
With the directive in force it'll be harder for people to hide their bank accounts from their own taxing authority. This is because its aim is that information about interest income will be exchanged between the European states. In the UK this will mean that foreign bank accounts will be like UK bank accounts - the HM Revenue and Customs will know about them.

Will the EU STD come into full force immediately?
No. The EU STD comes into force with transitional provisions. Under these, some countries will be applying a withholding tax and not exchanging information. The transitional provisions are intended to run for six years and the rate of withholding tax will start at 15%, rising to 35% at the end of the transitional period.

But what's to stop people simply moving their money to jurisdictions outside the European Union, like the Isle of Man or Switzerland?
The European Union has put a lot of pressure on these jurisdictions and Jersey, Guernsey, the Isle of Man and Switzerland have all agreed to apply withholding tax to interest arising on their bank accounts too.

So is there anything you should be careful about when discussing the opportunities the EU STD will bring?
Yes - money laundering! Tax evasion is a UK money-laundering offence. Reinvesting the proceeds of money laundering will be a layering offence. This means that advisers who suspect that income tax has not been paid on money held outside the UK would themselves commit a criminal offence if they don't report their suspicions to the National Criminal Intelligence Service (NCIS) .

Does this affect AEGON products?
No. The EU STD applies to deposits that give rise to interest - not to insurance policies.

Opportunities it brings you

Offshore bonds offer your clients substantial tax and other benefits compared with bank account deposits. These include:

• tax deferral - bank accounts give rise to yearly income tax liabilities even where the interest remains invested, but there is no tax liability on an offshore bond until a chargeable event arises
• cash now, tax later - the 5% yearly withdrawal allowance allows your client to take money from their bond but pay the tax later
• inheritance tax planning - offshore bonds are ideal trust investments because they are non-income-producing assets and so minimise the administration that the trustees and beneficiaries have to do
• potential better returns - AEGON has access to institutional interest rates not normally available to individual investors.

Our Wealth Management Portfolio offers the flexibility to achieve all the above benefits without increasing the investment risk. It could be the ideal solution for those clients who are looking for low-risk, tax-efficient alternatives to offshore bank accounts.

For more information on our Wealth Management Portfolio or any of our other offshore opportunities just get in touch.

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