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UK residents can also take advantage of investing overseas in special funds.
Distribution Funds
These funds, also known as qualifying funds, must distribute at least 85% of their income to investors. Distributions are paid gross and UK taxpayers have to declare the income received in their annual tax return.
As with offshore savings accounts, because the income is received gross it is possible to pay the tax at a much later date in the annual tax cycle, helping the individuals cashflow.
There can also be capital gains tax advantages, including the possibility of offsetting the individuals annual CGT allowance against gains.
Accumulation funds
These are also known as non-qualifying, or roll-up funds. They pay out no income so the individual pays no tax on them during the period of the holding but plough investment gains back into the fund. When the investor withdraws from the fund, gains are fully taxable at the holders highest rate and are subject to special offshore income gain rules, which do not allow gains be offset by the investors onshore CGT allowance. However, the funds can once again be useful for deferring a tax liability, perhaps for several years - until after retirement, for instance, when the investor is paying tax at a lower marginal rate.
More adventurous investing
The UK investment industry is closely regulated, to protect investors from unscrupulous operators. This means that sometimes the range of funds available appears limited, tempting more adventurous investors to look at overseas investment companies. Investing outside the remit of the UK regulator is really only suitable for experienced and sophisticated investors, who realise fully what they are doing.
Anyone investing with an overseas firm should be sure they know the identity of the relevant regulatory body and what their rights are if something goes amiss. Levels of regulation, supervision and compensation schemes vary enormously. The FSA recognises some funds, which, although they are managed overseas, are permitted to be marketed within Britain, because the UK regulator is satisfied with the level of regulation within the overseas jurisdiction. However, if something goes awry you will still not be able to claim from the UK compensation scheme.
Beware of boiler rooms
You should never invest as a result of a cold call. Reputable firms will never approach you in this way. Be wary, too, of invitations by letter to apply for independent company research from organisations you have never heard of. These could be boiler rooms unscrupulous organisations, usually based overseas, that peddle investments of dubious quality. They obtain your address from a share register, which is a publicly available document, and then write to you seeking to win your trust and obtain your phone number in order to sell you their wares. Dont be fooled by the UK freepost address and phone number, as it could be an accommodation address.
You should particularly take care if you find an apparently good offer advertised on the internet. You can find out from the FSA Register http://www.fsa.gov.uk/register/ or by phoning 0845 606 1234 if a firm or individual is authorised in the United Kingdom, and also check the regulators website for warnings about certain firms that are known to have caused problems.
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