Advice On Tax-free Savings Please.

[Tom Kagai]

Hi all,

A friend of mine (non-pc literate!) has just sold his property in the UK after several, somewhat happier, years residing in Thailand.

Because of the UK property boom, the lucky guy has got quite a bit of equity that he now wants to place in a safe high-interest savings account.

He seems to believe that, even though he is no longer residing in the UK, he will be taxed by the UK government on the interest that his savings earn (this seems totally un-ethical if he's not 'enjoying' the taxes paid by living there!).

Could anyone confirm this and, more importantly, offer any advice on where he should SAFELY invest his equity and enjoy a healthy return without feeding the tax man.

Thank you, in advance.

[GuestHouse]

He is correct in some respects to the Taxation of interest in the UK.

I would advise that your friends gets advice from an accountant (an account he pays for advice, not a financial planner who will be looking to sell your friend products).

Regardless of where the owner is, income on savings that are resident in the UK will be taxed under the same tax rules as a person working and earning an income in the UK.

So the interest on your friend's account will be seen as an income in the UK and taxed accordingly.

He is entitled to a tax code that will allow him to receive the first £4K or so tax free, there after he will pay taxes on a sliding scale.

There are some ways to avoid some of this tax. If he has only just sold up in the UK he can claim to be still tax resident in the UK, this allows him to place upto £7000 in a tax free ISA. (not much but a start). If he is married that could be £14K.

He could also pay cash he makes in interest into into a pension and thereby claim the tax back (paid into the pension and securing an income).

As he is not working overseas, there are no real advantages of him declaring himself overseas for tax purposes, he might therefore claim on paper to be tax resident in the UK and continue to pay money into ISAs and Pensions.

If he has a considerable amount of cash he might want to consider giving gifts to his children, help them out, avoid taxes now and reduce death duties when he dies.

In his position I would be extremely reluctent to take money offshore, certainly not to Thailand.

Taxes are the downside of the security he haves leaving his money in the UK.

Oh and tell him to make a will.

Edited June 10, 2006 by GuestHouse

[Tom Kagai]

^^^^^^^^^

I cannot thank you enough for that advice GuestHouse, and especially for making it so comprehensive and understandable.

[naka]

Mr.Bean.

The advice you received from GuestHouse is patently wrong.

See here, from the Government website.

Uk Tax Rules

So long as your friend complies with the "Non Resident" rules then he can be paid interest

tax free simply by filing an R105 form with each of his Bank(s) etc. You can download the

form from the site above.

I have been receiving tax free interest from banks, building societies, investment

houses etc. by this method for donkeys years. and they are normally familiar with this form,

except perhaps at some of the smaller branches.

Another method would be by banking/investing in the Channel Islands. No witholding tax

will be deducted if he gives his permanent address as "Thailand" since this tax only applies

to EU residents. Again I have been doing this for many years.

Here is an extract of the rules.

A person may be regarded as not ordinarily

resident in the UK if

• they are a former UK resident, and – they have left for permanent residence

abroad, and their visits to the UK average less than 91 days a tax year.

Naka.

UkTax.htm

Edited June 11, 2006 by naka

[Tom Kagai]

Mr.Bean.

The advice you received from GuestHouse is patently wrong.

See here, from the Government website.

Uk Tax Rules

So long as your friend complies with the "Non Resident" rules then he can be paid interest

tax free simply by filing an R105 form with each of his Bank(s) etc. You can download the

form from the site above.

I have been receiving tax free interest from banks, building societies, investment

houses etc. by this method for donkeys years. and they are normally familiar with this form,

except perhaps at some of the smaller branches.

Another method would be by banking/investing in the Channel Islands. No witholding tax

will be deducted if he gives his permanent address as "Thailand" since this tax only applies

to EU residents. Again I have been doing this for many years.

Here is an extract of the rules.

A person may be regarded as not ordinarily

resident in the UK if

• they are a former UK resident, and – they have left for permanent residence

abroad, and their visits to the UK average less than 91 days a tax year.

Naka.

Once again thanks! I had heard rumours of this, and the links have confirmed all of them. In fact, a lot of it will help my own case in the future (and possibly 'GuestHouse' too).

[GuestHouse]

The advice you received from GuestHouse is patently wrong.

See here, from the Government website.

Uk Tax Rules

So long as your friend complies with the "Non Resident" rules then he can be paid interest

tax free simply by filing an R105 form with each of his Bank(s) etc

I think you need to read the government link you posted, right at the top of the page you link to is the statement.

If you go to live or work abroad and become non-resident in the UK, you might still have to pay UK tax – but only on your income from the UK.

I'm non tax resident in the UK, I work and earn overseas and I have savings that gain interest in the UK. I employ an accountant in the UK to, among other things, minimize my tax liabilities.

The common misconception is that because you can apply for the bank not to deduct interest on your account you are therefore exempt from tax on that interest.

This is not entirely correct.

Interest on your accounts in the UK is "Income in the UK". The tax rules add all incomes, interest, pensions, dividends, rents and then tax you on the total of your incomes. If you have income in the UK that income is subject to taxation.

The only income that would not be taxed (that I am aware of) is tax free ISAs and income below the individual personal tax allowance (which you maintain despite being overseas).

The reason the taxman allows the bank to not deduct tax on your interest (deduct at source) is to prevent claims that deductions by the taxman have caused loss of compound interest in the case where the total income within the UK is below the personal tax allowance.

These things are complicated and I again suggest that the OP's friend consults an accountant on a one off fee basis for advice.

[Tom Kagai]

These things are complicated and I again suggest that the OP's friend consults an accountant on a one off fee basis for advice.

More good advice GuestHouse. On matters like these, it's easy to turn left or right so many times, that you end up back where you started!

I have spoken with my friend. He was comforted to know that the £4k threshold existed.The interest on his savings is going to be more than that but, sadly, only just. I think everything raised on this thread has given him enough food for thought but I would hazard a guess that he'll leave his savings safely tucked away in the UK, obtain the correct tax code, and cough up.

Thanks again guys.

[DD18]

Hi all,

A friend of mine (non-pc literate!) has just sold his property in the UK after several, somewhat happier, years residing in Thailand.

Because of the UK property boom, the lucky guy has got quite a bit of equity that he now wants to place in a safe high-interest savings account.

He seems to believe that, even though he is no longer residing in the UK, he will be taxed by the UK government on the interest that his savings earn (this seems totally un-ethical if he's not 'enjoying' the taxes paid by living there!).

Could anyone confirm this and, more importantly, offer any advice on where he should SAFELY invest his equity and enjoy a healthy return without feeding the tax man.

Thank you, in advance.

My understanding is getting Inland Revenue to consider you as non resident is a problem. If you are able to stay out of country for a year it is better. There is a section on tax form to inform them you are leaving country and when.

http://www.taxcafe.co.uk - sell a book explaining in more detail also about domicile, even if you have not been resident in UK for years your heirs can still be caught for inheritance tax on all world wide assets.

Look at putting money offshore (Channel Islands), many uk banks (HSBC/LLoyds) have current/savings/foreign currency accounts there and obviously online banking. If you are not resident in EU country they do not deduct tax.