This guide is for any individual clients who are residents of the European Union ''EU'' Member States. Individuals resident for tax outside the EU are generally not affected, although if you hold a passport issued by an EU Member State you should also read on.

 

A full list of the EU Member States, which of course includes the UK, is provided at the bottom of the page. The Isle of Man, Jersey and Guernsey are not part of the EU and so individuals resident in those jurisdictions are not affected.

 

As an initial guide, we have produced a simplified EU Savings Directive Flow Chart to help you identify whether you are likely to be affected by the Directive. If you are an existing client, the forms A and B referred to in the chart can be downloaded at the end of this page.

 

The answers below attempt to address the most frequently asked questions, but if you wish to speak to someone about your personal circumstances, please call our Customer Services Team.

 

1. What is the EU Savings Tax Directive (''EUSD'')?

At the European Council Meeting in June 2003, EU Member States unanimously agreed that exchange of information, on as wide a basis as possible, should be the ultimate objective of the EU, in line with international developments.

 

It was, however, agreed that a limited number of named Member States (Austria, Belgium and Luxembourg) would be allowed to operate a transitional withholding tax, but these member states agreed to implement exchange of information as soon as conditions permit.

 

In order to preserve the competitiveness of the EU financial markets, it was agreed that the EU commission would enter into discussions with key third countries (USA, Switzerland, Liechtenstein, Monaco, Andorra and San Marino) to promote the adoption of equivalent measures in those countries.

 

2. Does the EUSD affect the Isle of Man and Jersey?

Yes. Within the framework of their constitutional arrangements, the Member States committed themselves to ensuring the adoption of the same measures in all of their dependent or associated territories (for example, Isle of Man, Jersey, Guernsey and the dependent or associated territories in the Caribbean).

 

3. From when did the EUSD take effect?

The EUSD came into force on 1 July 2005.

 

4. So does it affect me?

Yes, if you are an individual resident for tax in an EU Member State. If you are resident outside the EU but hold a passport issued by an EU Member State then you should fall outside the scope of the EUSD.  However, you may be asked to provide proof that you are resident outside the EU.

 

5. How will it affect me?

If you are affected by these rules, then any interest payments made to you by us after 1 July 2005 will be paid net of 15% withholding tax, unless you elect for the exchange of information option (see question 6 below). Of course, this will also apply to any accounts held with banks in the countries that have elected the withholding tax route. This rate of withholding tax will increase to 20% from 1 July 2008 and 35% from 1 July 2011.

 

If you choose the withholding tax option, none of your details will be disclosed or exchanged - confidentiality will be preserved.

 

Please note that the withholding tax option referred to above will be known as the retention tax option within the UK Crown Dependencies. This is to distinguish the islands from the member states and to reflect the fact that they are not part of the European Union and are not subject to the directive.

 

If you elect for exchange of information, then no tax will be deducted from interest payments made to you, but details of the amount of interest paid together with certain personal details will be provided to the tax authorities (see question 6 below).

 

6. How do I elect for exchange of information?

If you are affected by the EUSD you have the option to choose the exchange of information option instead of suffering the retention tax. If you choose exchange of information, then no retention tax will be deducted from interest payments made to you. Instead, we will provide only the following details to either the Isle of Man or Jersey Tax Authorities (as applicable):

·         Your name

·         Your address

·         Bank account number

·         Details of the level of interest received and

·         The period to which the interest relates.

 

The relevant tax authorities will then, in turn, provide this information to the EU Member State in which you are resident.

7. Will these changes mean that I should pay more tax?

No. On the basis that you are already declaring the interest income to your home tax authorities, these changes will have no impact upon the overall level of tax that you pay. Even if you elect the retention tax option, the 15% retention tax will be available for credit (i.e. offset) against your tax liability in the EU Member State in which you are resident.

 

8. Does the EUSD just relate to bank accounts?

No, the EUSD also extends to a number of other forms of ''savings income''. These other areas are interest from, and the proceeds of sale or redemption of, certain bonds, and income from certain types of investment funds.

 

9. How do these changes affect customer confidentiality rules?

These changes will have no impact upon customer confidentiality if you elect for the retention tax option. If you elect for the exchange of information your details will be provided to the relevant tax authorities as detailed above in question 6.

 

10. Is there any way to make this easier for me?

Fairbairn Private Bank has several options available to you, which may simplify your tax position and make the preparation of your tax returns a much easier process. For bank account interest there is a possibility to roll up the interest until closure of the account rather than having this paid monthly or quarterly. This is possible via our Accumulation Account range of instant access or high interest accounts, and means that the interest is only credited and therefore stated on your tax return in the year that you decide to close the account. This may be at any time of your choosing in the future, for example when you retire, when your income level has reduced, or you change your country of residence. Consequently, your tax returns will be simplified and you can plan when you will pay the tax on your savings.

 

Other options include having Fairbairn Private Bank create an offshore insurance bond, which, in many cases, can lead to tax savings that more than justify the cost of this structure. Alternatively, our subsidiary company, Fairbairn Trust Limited, specialises in providing discretionary trusts and / or offshore company structures, which can be a highly effective method of financial planning and are all structures outside the scope of the EUSD.

 

11. Who can I contact for more information about my personal circumstances?

You should always discuss your individual circumstances with your tax adviser. For information on how Fairbairn Private Bank may be able to help you, contact our Customer Services Team, or your personal or private banker.

 

Existing clients can advise the bank of their personal circumstances by downloading and returning the relevant form below: