Protect your offshore assets

"Offshore account holders are under attack," says Elizabeth Colman in The Times. HM Customs & Excise is clamping down on UK residents who use offshore "tax havens" (including Jersey, Guernsey, and the Cayman Islands) as hiding places for assets. Holding assets offshore is perfectly legal. But anyone whose "permanent legal home" or "domicile" is Britain, and who is also classed as a "UK resident" for tax purposes (usually because they spend more than half of each tax year here for work) must still pay UK tax on any income or capital gains generated offshore, regardless of whether or not the funds are "remitted back" to Britain.

However, HMCE relies heavily on individuals voluntarily disclosing their offshore assets. That's because several offshore jurisdictions have refused to share client details with overseas tax authorities. So HMCE's latest initiatives, says MoneyMarketing.co.uk, include seeking legal notices to force around 25 foreign banks to disclose information about clients with offshore accounts. Anyone shown to have lied about such assets on previous tax returns could face substantial penalties, or even prosecution.

Of the legitimate offshore schemes for British taxpayers, the offshore bond is among the more useful. These bonds are a wrapper set up by a UK insurance firm in which you can hold a variety of investment funds, or even cash. The objective isn't tax avoidance but rather tax deferral. This is useful for higher-rate taxpayers who may be nearing retirement, and who either expect to pay a lower rate of tax on their pension income in Britain, or perhaps plan to retire to a country with a lower tax rate than the UK.

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The bonds allow the fund manager to roll up investment gains largely tax free (withholding taxes are levied on dividend income) and permit an investor to withdraw up to 5% of the invested capital each year tax-free; the tax only falls due when the bond is cashed in. But fees can be steep 8% in some cases and minimum subscriptions are typically £10,000, so take advice before diving in.