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.