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dunroamin

Offshore Accounts

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anyone know owt about offshore accounts?

i see in the paper today you can get 4.85% with portman - which i guess is tax free?

whats the catch - why isn't everyone doing this?

Edited by dunroamin

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anyone know owt about offshore accounts?

i see in the paper today you can get 4.85% with portman - which i guess is tax free?

whats the catch - why isn't everyone doing this?

It's not tax free but interest is paid gross. Then you have to declare it in your tax return and pay tax on it. Most high net worth individuals do it.

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It's not tax free but interest is paid gross.  Then you have to declare it in your tax return and pay tax on it.  Most high net worth individuals do it.

so if you end up paying tax on it - whats the point?

is it the same level of tax? - or is it just that you can fiddle it and not declare?

apologies for naivety on this issue ... :unsure:

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Suppose you have £10,000 in an offshore account paying 4.5% gross interest. By having it offshore you can arrange interest to be deferred and be compounded gross: http://www.nationwideinternational.com/ope...ng_deferred.htm

So

Year Capital Deferred Interest Accumulated

1 10,000 450

2 10,000 920.25

3 10,000 1,411.66

4 10,000 1,925.19

5 10,000 2,461.53

6 10,000 3,022.60

7 10,000 3,608.62

8 10,000 4,221.01

9 10,000 4,860.95

10 10,000 5,529.69

At the end of year ten you decide to have interest capitalised. So you have to pay 40% tax on £5,529.69 so the net interest after tax will be £3,317.82.

Suppose instead you left the £10,000 onshore in an account paying 4.5% gross, which becomes 2.7% net after 40% tax.

Year Capital + Interest

1 10,270

2 10,547.29

3 10,832.07

4 11,124.53

5 11,424.90

6 11,733.37

7 12,050.17

8 12,375.52

9 12,709.66

10 13,052.82

So at the end of ten years, the net interest after tax is £3,052.82

By just deferring tax at the end of the period, you have let interest to compound at the gross rate, which produces an extra £265.99

It may seem a small amount, but because of the effects of compounding the difference grows exponentially with time, so after 25 years it would be £2567.30

Also the effect is magnified by higher interest rates, again exponentially.

Another benefit may be that if you become a lower rate taxpayer you can decide to have interest capitalised and only pay 20% tax on it.

All this is perfectly legal for UK citizens.

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and you can live abroard (tax haven) for a year or so to capitalise it at zero tax i think then move back to the uk....Its good how the lack of informed masses work the system while the high earners contribute less and less.

And we are told its in our economic interest otherwise the rich will leave our shores...

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I think it is well known in the wealthy circles that the UK is a bit of a tax haven for foreigners. Just one reason why major financial institutions are based in the City.

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I think it is well known in the wealthy circles that the UK is a bit of a tax haven for foreigners. Just one reason why major financial institutions are based in the City.

I'm not sure but is it not the case that taxation is based on RESIDENCY rather than citizenship? So you are liable to UK tax if you are resident here, regardless of nationality/citizenship?

Also, please correct me if I'm wrong, offshore is useful for those who are resident in UK or EVEN UK CITIZENS who are DOMICILED in another country (that means they have roots, ties, attachment, and what have you to another country). DOMICILE is tricky to define and prove. But as long as a non-domiciled UK citizen DOES NOT BRING THE MONEY EARNED OFFSHORE BACK INTO THE UK, I think I am right in saying it is not taxable in the UK.

Any lawyers out there? Can you clarify? Confirm?

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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