Offshore banking

Historically, if you were a UK resident but non-UK domiciled then foreign income and capital gains retained offshore could not be taxed in the UK unless/until “remitted” (the so-called "remittance basis" of taxation) As a general rule, any use or benefit obtained in the UK which results from funds retained abroad would count as a remittance.

UK resident but non-UK domiciled individuals can still benefit from banking offshore.

However, changes to the UK tax rules, which took effect from 6 April 2008, mean non-UK domiciled individuals who have been UK resident for seven out of the previous nine tax years must now pay an additional £30,000 charge if they wish to claim the benefit of the remittance basis. The charge is payable for each tax year in which they claim the remittance basis.

If the £30,000 additional charge is paid, any interest earned from offshore banking will only be taxable in the UK when remitted. Of course, it may not be worthwhile paying the £30,000 unless the foreign income or capital gain being sheltered is significant.

If an individual has been UK resident but non-UK domiciled for less than seven of the previous nine tax years they can continue to hold offshore deposits and only be subject to UK tax on the interest from such deposits if it is remitted to the UK. For such an individual, this benefit can be enjoyed without having to pay the £30,000 additional charge.

All depositors enjoy gross payment of their interest on funds deposited offshore; however based on general principles, it is likely that the interest will be taxable in the individual's country of residence. UK residents are liable for income tax in respect of such interest, subject to remittance basis treatment in the case of a non-UK domiciled resident (as outlined above). Moreover, EU resident individual depositors must authorise the details of their account to be supplied to the tax authorities in order to avoid paying the EU retention tax which, since 1st July 2008, has been 20 percent of the interest due.

It is your responsibility to ensure that any tax liability in relation to funds deposited is accounted for by you to your appropriate tax authorities.

As for offshore mortgages, the changes to the offshore mortgage rules are only applicable to new mortgages or where the terms of an existing mortgage are varied. UK resident but non-UK domiciled persons with existing offshore mortgages should continue to benefit from existing arrangements. For instance, they can continue to finance interest repayments on the mortgage using foreign income without this being treated as a remittance to the UK.