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Clampdown on the overseas cash cows
UK-based savers with money in savings accounts in European tax havens should make sure they don’t unwittingly get caught in the net of a new clampdown on cross-border tax evasion.
Banks and other financial institutions with offshore bases in low-tax territories such as the Isle of Man and Guernsey, have begun writing to their clients making them aware of a little-publicised European Union savings directive, expected to come into force this July.
Under the directive, financial institutions in EU member states will be required to hand over to the relevant tax authority information about savings income received by EU individuals not resident in the country where the account is held.
The information will be handed to the tax authority where the account holder is resident so that it can be compared with what has been declared on their domestic tax returns.
Payments affected include interest on bonds, savings certificates, term deposits, current accounts and savings accounts. Other types of income, including company dividends, pensions and rents are not considered to be savings income.
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Inheritance tax money-spinner
Inheritance tax (IHT) is proving a real money-spinner for the taxman. The Inland Revenue’s “take” of what is often referred to as “the voluntary tax” rose just over 16 per cent to £2.9bn in 2004-2005, according to provisional figures.
A growing number of homeowners are being caught in the IHT net as house price rises, particularly in London and the south-east, outstrip the increase in the “nil rate band”, below which assets incur no tax.
The nil rate cut-off point was increased by 5.7 per cent to £275,000 for the current tax year and will rise to £300,000 in 2007-2008. Everything above these amounts is subject to IHT at 40 per cent although gifts or bequests to a spouse are a significant exception.
With an estimated 2.4m homes in the country worth more than £275,000, it is clear that IHT is no longer a tax which need concern only the very wealthy.
Hidden rule uncovers funding
Thousands of buy-to-let property investors could be missing out on a little-known Inland Revenue rule that may cut the tax bill they pay on rental income.
Under widely-recognised Revenue rules, mortgage interest payments on buy-to-let properties can be offset against rental income from tenants. But many buy-to-let investors may be failing to take advantage of much overlooked rules that could allow them to increase the mortgage on their rental properties, release some cash and, in the process, cut their tax bill on rental payments. Any cash lump sum extracted from their buy-to-let property could then be used towards a new family home, or to pay off chunks of the mortgage on a main residence – which doesn’t normally attract any tax relief.
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