Tax-efficient savings in the Isle of Man

I am a 69-year-old British pensioner with all my savings split between two banks in the Isle of Man. One account is a fixed deposit for one year which yields around 5%. The other account tracks the Bank of England Base Rate +0.2%. I am quite happy with the returns but could I do better elsewhere and am I living in ignorance of the risks involved? I am living comfortably off my pension without touching the capital or income.

The rate you are receiving on the one-year fixed rate bond is reasonable, based on present interest rates in sterling. You could get slightly more but sometimes the time loss between closing one account and opening another can sometimes outweigh the interest you would have gained by making the change.

In addition, as a new customer to a new bank, various forms of identification and proof of wealth are required which can delay the account opening process even further. In your case, you have not indicated when the one-year account reaches maturity.

If it is in the coming few months, then I would suggest you seek advice for an alternative and, if you are happy with the advice, start the identification process, etc., soon so that your funds can be transferred speedily.

The other account tracks the Bank of England's base rate. If therefore the base rate was 5%, then you receive 5.2%. If the base rate goes down to 4%, then your interest would drop to 4.2%. In times of rising interest rates, base rate trackers are a good idea, as opposed to potentially locking your money away for a fixed period and at a reduced rate of interest.

As regards ignorance of the risks involved, it depends of course which banks you have your deposits held with. The Isle of Man financial regulations are very good and, so long as your account is with a reputable and highly rated institution, then you should have very little to worry about.

You may be aware that, as a British citizen residing in Malta, there are tax advantages of holding bank accounts and investments in offshore centres, such as the Isle of Man. For example, unlike a Maltese national who is taxed on his worldwide income, you are potentially only taxed on a remittance basis on the interest and income you bring into Malta.

You may therefore be able to have your interest paid gross without deduction of tax in the Isle of Man. You would then, in turn, only pay income tax in Malta on what you remit.

You have stated that you do not presently withdraw any interest, so make sure you are not paying tax on the accounts!

It is always advisable to seek independent advice on the best paying accounts available as opposed to sticking with the one bank. There was a lot of negative press last week on certain UK banks starting to charge clients who hold small balances in their accounts and one really should shop around for the right accounts to suit your needs.

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 or e-mail mh@hollingsworth-int.com.

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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.