Threat to expatriate savers highlighted by Cyprus tax crisis

Business Correspondent/Personal Finance Editor

Saturday 23 March 2013

The threat to bank depositors' savings in Cyprus sent shock waves around expatriate savers this week, at the same time as the UK tax authorities stepped up their scrutiny of offshore finances.

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SIMON BAIN

The UK Government has guaranteed the savings of its civil servants and the military in Cyprus, and the political stand-off may result in smaller depositors escaping the 6.75% tax on them proposed from Brussels.

Depositors in Bank of Cyprus UK are protected by the Financial Services Compensation Scheme up to the £85,000 limit, but only since last summer when the bank signed up to it.

The Cypriot Laki Bank, with some operations in the UK, is protected only by a Cyprus scheme covering up to €100,000.Tristan Cooper, an analyst at fund group Fidelity, said: "The craziest thing about the Cyprus announcement is the huge potential cost of undermining the spirit of the bank deposit guarantee for what is a small saving in the overall scheme of European finances. "Even if policymakers now row back from taxing small depositors in Cyprus, the damage has been done." Economist Howard Archer at IHS Global Insight said: "European central bankers will be keeping a close eye on any flows out of Spain... it could appear to depositors elsewhere in the eurozone that deposit insurance is illusory, even though the Cypriot levy is defined as a tax and therefore not a failure of the deposit insurance system there."The episode is the first to shake the expat community since the Icelandic banking crash saw UK depositors in a supposedly safe Isle of Man subsidiary of Kaupthing lose £1.6 billion of their life savings in 2009.An Isle of Man compensation scheme belatedly protected only the first £50,000 of deposits in a business which barely a year earlier had belonged to Derbyshire Building Society, stranding 2500 savers who had deposited larger sums or temporary amounts following house sales, while bond investors through insurer Aegon lost up to 27%.A campaign group uncovered that when it collapsed, the subsidiary was owed £900 million by Kaupthing in Iceland, or 150% of its capital base when FSA rules were supposed to set a 25% limit.Scot Kevin Gallagher, who works for a disabled charity and a semiconductor design company in Taiwan, told The Sunday Herald last year: "Most of the money has been returned via the normal liquidation process, but I am still thousands out of pocket. It is still upsetting to think of what happened. "The Isle of Man Government told me my money was safe, the UK Government regulated the bank, and Kaupthing IOM told me I had the backing of a parental guarantee. All proved worthless."Nigel Green, chief executive of expat wealth adviser deVere group, said: "The crisis in Cyprus underscores the fact that expatriates and international investors need specialist financial advice to protect and grow their wealth. "Living and/or working abroad is an extremely rewarding, life-enhancing experience for most people, but the financial aspect can be challenging because financial systems and structures vary from country to country."Meanwhile, the Government has announced a tax information agreement with Jersey, Guernsey, Isle of Man and the Cayman Islands. Chris Tragheim, tax partner at Deloitte, said: "It means, in essence, that UK persons with accounts in these countries will have their assets and balances reported to HMRC. It's another step in the drive towards global exchange of information."Gary Ashford at the Chartered Institute of Taxation, said: "It is important that HMRC recognise that merely having a bank account overseas does not mean you are going to be at fault with your tax affairs."That said, international tax can be complicated and I would recommend that people with financial interests across boundaries ensure they do not have tax liabilities that they did not previously appreciate."This is particularly the case with interests in offshore trusts."

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Threat to expatriate savers highlighted by Cyprus tax crisis

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