By Iain Yule

Since 1 July 2005, expats have had a new tax to pay - or make sure they avoid. That was when the EU Savings Tax came into operation. Banks and some fund managers in offshore finance centres such as Jersey, Guernsey and the Isle of Man now deduct tax on interest paid to EU citizens. So you as a Briton abroad, unless you declare you have nothing to hide in your offshore account and leave it open to scrutiny by the tax authority of your home country, face being taxed.

This 'withholding tax' is payable at source at a rate of 15%, rising to 20% in 2008 and 35% in 2011. It is charged on deposit interest, income from fixed interest securities such as gilts, and income from most investment funds which hold fixed interest securities.

Non-EU national expats and EU-expats based outside the EU are not affected, and there are a number of ways that those who are affected can avoid paying the tax. As outlined by tax experts at The Fry Group, tactics to avoid paying the tax include:

• Switching your deposits from interest-paying to interest-accumulating
• Changing your savings strategy to growth investments, with the aim of making gains, not income
• Moving deposits to areas outside the reach of the savings tax, such as Hong Kong or Singapore
• Holding investments in an offshore company
• Transferring assets into an offshore trust
• Bundling savings in an offshore insurance portfolio bond.