Tax on Investments Abroad Question


Y

Yunus

Gents,

Someone who know nothing about investing abroad, If I placed money in a
Country abroad, say because it has a higher Interest rate over a 2 year
period (maturity date)...

1. Is is legal?
2. Do i have to declare it?
3. Would I have pay tax on it, if so annually or after the maturity
date?
4. If after the maturity date (after 2 Years I only return the initial
investment to UK would I need to pay Tax on it, if so how much?
5. Is it worth the hassle opening a savings account abroad?
 
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T

Theo Markettos

Yunus said:
Gents,

Someone who know nothing about investing abroad, If I placed money in a
Country abroad, say because it has a higher Interest rate over a 2 year
period (maturity date)...

1. Is is legal?
Yes.

2. Do i have to declare it?
Only as much as you need to pay extra tax on it. Many countries will pay
non-residents interest without deducting tax, which means you need to
declare it as income to HMRC and pay any tax that might be due on it. This
might pull you into Self Assessment if the figure is large enough. I'm not
completely clear on the situation where you must pay country X's local taxes
of, say, 10% and your income tax rate is 20% - I think you'd pay the
difference to HMRC. I don't know if there needs to be a tax treaty between
the two countries to allow this (otherwise you'd have to pay the full tax in
both places).
3. Would I have pay tax on it, if so annually or after the maturity
date?
You pay tax on income received. So if the interest is paid into your
account annually, the tax liability is annual. If it's paid in a single
lump at the end of 3 years, that's when you'd need to pay the tax.
Depending on your tax situation, one or other way may cost more.
4. If after the maturity date (after 2 Years I only return the initial
investment to UK would I need to pay Tax on it, if so how much?
Don't quote me on this, but AIUI it isn't domicile of the money that counts,
it's domicile of you. In other words, if you're domiciled in the UK you pay
UK tax on your worldwide income, irrespective of where that income was
generated or how the funds were moved around. But IANA international tax
accountant.
5. Is it worth the hassle opening a savings account abroad?
It really depends. You may want to look up 'inflation risk'... interest
rates in, say, Turkey might be 20% but that's because the Turkish Lira
devalues to keep pace (or worse), so you don't win. And the currency
fluctuations in a day can easily wipe out a year's interest. OTOH if you
need to keep TL because you sometimes visit, you'll get a much better rate
there than you would holding them in the UK.

The admin hassle is more, particularly if you don't speak the local
language, and many banks aren't quite set up to be operated entirely from
abroad (if they let non-residents open accounts at all). You may encounter
the local bureaucracy (eg need to be registered with the local tax
authorities).

So really worth investigating the situation for the particular country you
want, as it varies a lot (even within the EU).

Theo
 
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Y

Yunus

Only as much as you need to pay extra tax on it. Many countries will pay
non-residents interest without deducting tax, which means you need to
declare it as income to HMRC and pay any tax that might be due on it. This
might pull you into Self Assessment if the figure is large enough. I'm not
completely clear on the situation where you must pay country X's local taxes
of, say, 10% and your income tax rate is 20% - I think you'd pay the
difference to HMRC. I don't know if there needs to be a tax treaty between
the two countries to allow this (otherwise you'd have to pay the full tax in
both places).


You pay tax on income received. So if the interest is paid into your
account annually, the tax liability is annual. If it's paid in a single
lump at the end of 3 years, that's when you'd need to pay the tax.
Depending on your tax situation, one or other way may cost more.


Don't quote me on this, but AIUI it isn't domicile of the money that counts,
it's domicile of you. In other words, if you're domiciled in the UK you pay
UK tax on your worldwide income, irrespective of where that income was
generated or how the funds were moved around. But IANA international tax
accountant.


It really depends. You may want to look up 'inflation risk'... interest
rates in, say, Turkey might be 20% but that's because the Turkish Lira
devalues to keep pace (or worse), so you don't win. And the currency
fluctuations in a day can easily wipe out a year's interest. OTOH if you
need to keep TL because you sometimes visit, you'll get a much better rate
there than you would holding them in the UK.
MANY THANKS.
 

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