Isle Of Man Banks Launch Tax Planning Savings Vehicles

by Jason Gorringe, Tax-News.com, London

03 November 2005

Prompted by the European Union's Savings Tax Directive, several banks and building societies in the Isle of Man have launched new savings vehicles known as "Accumulator Accounts", which allow savers to defer their tax liabilities.

Introduced on July 1, 2005, the Savings Tax Directive is intended to facilitate the exchange of information about savings interest income between the tax authority where the saver's account is held, and his or her home state. However, several territories, including the Isle of Man and the Channel Islands, have opted to apply a temporary withholding tax, currently levied at 15%.

The Daily Telegraph reports that, with this in mind, several institutions have in recent months launched Accumulator Accounts, which delay the payment of interest until the account is closed, including Alliance and Leicester International, Anglo-Irish Bank, Bradford and Bingley International, Britannia International, and Derbyshire (Isle of Man).

The advantage of these vehicles is that they enable individuals currently resident in the UK or other EU member states to potentially benefit from lower rates of tax if they are planning to become resident for tax purposes in another territory by the time the account is closed.

However, to ensure that the interest is not taxed in the saver's home state before the account is closed, the drawback is that interest cannot be compounded, thus individuals must decide whether any future tax liability is likely to exceed potential lost returns.

Fiona Passey, director of offshore banking at Derbyshire Isle of Man noted according to the Telegraph that these types of accounts will be particularly helpful for those planning for their retirement, intending to downsize or looking to move abroad.

"Our Interest Accumulator account has been designed for those clients who are expecting changes to their taxation obligations at a future date," Passey observed.

"Alternatively, if you are an expatriate returning to the UK between contracts and you intend to work abroad again, this might be the right account for you, if you have established non-residency for UK tax purposes," she added.

Depending on the lock-in or withdrawal notice periods stipulated by the account provider, interest rates on such vehicles presently range from 4.45% to 4.85%.

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