The New EU Savings Tax Law
From the 1st July 2005, the new EU Savings Tax Directive comes into force. This is an agreement between the EU member states with the exception of Austria, Belgium and Luxemburg) as well as certain other countries that have voluteered to abide by the Directive.
Under the new System, these countries will automatically exchange information about any customers who earn saving income (e.g. interest received) in one EU State but who are residents in another EU State.
Therefore an individual's identity, their address, the bank or investment house where their affected assets are held, the level of savings income received and the period over which it has been received will be passed automatically to the tax authority in the country in which the money is housed. This information will then automatically be passed on to the tax authority in the country in which the individual resides so that they can impose the tax themselves.
Please not that UK residents who are not domiciled here will still be taxed on a remittance basis.
It is up to the individual banks how they will implement this rule and each client should discuss it with their own bank.
The critical question is: how do these new Rules affect you as a UK resident, what are the deeper implications of these Rules and what can you do about it?
To start with, following reporting of the saving income to your home country, there is also an increased chance that the taxman will want to dig into your past tax affairs. This becomes a problem if the money was not taxed prior to being deposited abroad of if you can't explain it in any other convincing way. It may therefore be a sensible option, if the funds in those overseas accounts have not been taxed, to consider making a full disclosure to the Inland Revenue. By doing so, you will pay the old tax plus interest and penalties. But at least you won't be a criminal and won't go to prison. You should bear in mind that tax evasion is nowadays a reportable criminal offence.
Are there any other options?
Closing the accounts and taking the money out or transferring it to a tax heaven jurisdiction is a risky situation as it is highly likely that the taxman will receive a list of former accounts and sooner or later he might decide to take a closer look at them. And when this happens, you will have already incriminated your position by trying to hide the funds.
Or you might choose to convert those accounts into current account.
You might also want to change the address on the accounts to local addresses and become an ex-pat so that the accounts are no longer non-resident.
The above are just ideas on the table. You should always proceed with care and after proper consultations with your bank and your professional advisors.
Don't forget that the one benefit of doing nothing is that it doesn't make you look guilty later on.
The bottom line is that you cannot ignore the new legislation and you definitely have to consider your position.
Demetris Savva FCCA
Constantine Savva
Chartered Certified Accountants
June 16, 2005
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