Investment Registration Scheme

I elected not to register my bank deposits in the UK and Jersey when the government introduced the registration scheme some two or more years ago. Now that there will be a withholding tax adopted from July 1 on deposits abroad, I am considering registering the funds as the tax I will have to pay will be the same. What are my options if I choose to leave the money abroad without registering it?
In view of the fact that the EU Savings Tax will be implemented on July 1, it was no surprise that the government reintroduced the registration scheme as it was one last chance for investors with undeclared funds abroad to regularise their position.

The registration scheme will be open up to June 16. Between now and then, savers and investors who have deposits and investments abroad are being given the chance to declare those funds with the local authorities and for tax to be collected on any interest thereafter. There will be a penalty for doing so and that is a fixed 5% of the value of the assets being declared, for example a tax penalty of £5,000 on capital of £100,000. This is a one-off tax penalty but of course tax will have to be paid on future interest income.

If you elect not to register the funds held abroad then the following scenario will evolve. The UK will be adopting a full 'sharing of information' with Malta in that the interest earned from your account will be notified to the local authorities.

Naturally, if you have not declared this interest locally then you will encounter difficulties from July 1, as your account will no longer be 'confidential'. In the case of Jersey, you will be able to choose whether your interest earned will be notified to Malta or whether you wish to have a withholding tax deducted from the interest at source. In the latter case, your account will remain 'confidential' but tax will still be deducted. The net effect would be that 15% tax will be deducted at source which is the same rate as what would be paid if the deposit was held locally. Your only saving is the avoidance of the 5% tax penalty on the capital sum.

Regarding your options if you keep your funds undeclared, this will depend on what you are trying to achieve, i.e. a higher rate of return or tax evasion! The latter point is of course not one that I would ever discuss. If however you are looking to invest or save 'tax efficiently' and you wish to control the reporting of any interest earned, then there are banks and investment companies that have changed their 'paying agent' to outside the EU as a direct result of the EU Savings Tax Directive - for example, from Jersey to Hong Kong - the reason being that if the interest is paid from a non-EU country then the directive does not apply.

In addition, the use of trusts and life assurance company products are not surprisingly becoming ever more popular as they too, fall outside the directive.

Please bear in mind though that the registration scheme was created for a strong reason and very careful consideration must be given to the implications if you do not declare.

Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 (office hours) or e-mail mh@hollingsworth-int.com

Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.