View more on these topics

Dublin&#39s fair kitty

I am looking to retire in the near future. In addition to my pension, I

have a substantial lump sum from which I want to achieve the highest

possible income. I understand that by using an overseas savings account, I

can get an additional 10 per cent return on my income. Is this true?

For investors who are resident or ordinarily resident in the UK for

taxation purposes, some accounts do offer favourable tax treatment.

However, this does not by any means apply to the majority of accounts.

Most investors pay tax on both onshore and offshore accounts at their

highest rate of tax. If they choose to invest offshore accounts which pay a

good return, then they are still liable to taxation at their highest rate

when they complete their annual tax returns.

For example, a basic-rate taxpayer who invests £10,000 in Bristol &

West International&#39s Sterling 30 account will receive a gross return of

6.25 per cent.

Once tax has been deducted, this erodes the return to 5 per cent a year. A

higher-rate taxpayer will find the net return is 3.75 per cent – barely 1.5

per cent above the current rate of inflation.

However, this is not the case in another type of account to which you may

be referring. Certain types of stock-market-linked plans, typically issued

by companies domiciled in Dublin, invest in products such as derivatives

lin-ked to the Eurostoxx 50 or FTSE 100 index.

By doing so, they are able to take advantage of favourable tax treatment.

Usually, investors in a company receive a 10 per cent tax credit for

dividends paid by the company. Investors in companies domiciled outside the

UK, however, do not qualify for the credit and dividends are consequently

taxed at 10 per cent.

Furthermore, being domiciled in Dublin, they are able to access further

tax advantages, thereby reducing overall costs.

Good exponents of this working in practice are AIB Govett and NDF

Administration. The NDF plan pays an annualised income of 10.1 per cent.

Basic-rate taxpayers who are resident in the UK for taxation purposes and

who are liable to income tax at the Schedule F ordinary rate would

currently pay in tax only 10 per cent of the gross dividend paid, compared

with 20 per cent on the interest from a bank or building society account.

Because the fund is domiciled in Dublin, investors are not eligible for

the tax credit applied to dividends paid by UK companies and consequently

pay tax at the Schedule F ordinary rate, currently 10 per cent of the gross

dividend paid for basic-rate taxpayers and 32.5 per cent for higher-rate


For example, if the dividend were 10.1 per cent, with a Schedule F

ordinary rate of 10 per cent, the tax payable would be 1.01 per cent, so

the net dividend for investors who are liable to basic-rate income tax

would be 9.09 per cent.

The same principle applies for investors who would be subject to income

tax at Schedule F upper rate, currently 32.5 per cent of the gross dividend


For example if the dividend were 10.1 per cent, with a Schedule F upper

rate of tax of 32.5 per cent, the tax payable would be 3.28 per cent and so

the net dividend for investors who are liable to income tax at the higher

rate would be 6.82 per cent.


L&G waits on internet cafe society

Legal & General is using the boom in internet cafes to serve up its range of Isas to the public.The life office has struck a deal to run a campaign in eight of the cafesrun by the Internet Exchange.Staff at the cafes will be wearing specially designed uniforms andbaseball caps prompting customers to visit L&G&#39s […]

Framlington Investment Management has introduced the New Leaders fund

Framlington Investment Management has introduced the New Leaders fund, a unit trust that is aimed at mainstream investors willing to take a degree of risk. The fund will invest in a range of companies that are involved in technology, telecoms, healthcare, media, financial services and the Internet.Framlington believes that these areas have the potential for […]

CII calls for awareness of financial exclusion

The Chartered Insurance Institute wants to make IFAs aware of financialexclusion by flagging the subject in the new FPC coursebook out in August.The move comes as the FSA publishes research revealing the extent of theexclu-sion problem.The CII believes IFAs should take a similar approach to the excluded asbanks take to students by pointing them, for […]

RBS confirms sales of NatWest insurance holdings

The Royal Bank of Scotland has confirmed the sale of its 50 per cent stakes in NatWest Life and Royal Scottish Assurance to CGNU. The £600m deal comes as no surprise as it formed part of the takeover bid RBS launched for NatWest in November. The high street bank is also launching the new marketing […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm