Why use a bank account when there is something better?

We have to say that we don’t understand in this day and age why UK depositors (whether resident or non-resident) leave large sums of money in offshore bank accounts. Since the introduction of last year’s EU directive anyone who earns bank interest in the European tax havens and is resident in the EU either has to face:
1) Losing withholding tax at source to ensure the non-reportage of interest earned to the tax authorities
2) Suffer having details of all interest earned reported
What makes this particularly galling to us is that billions of Pounds of deposits remain in offshore deposits when far more efficient alternative are available. For starters there are quasi-deposits that offer far more attractive rates of interest than most bank accounts. HSBC’s 6% fixed deposit offering recently created quite a stir because it was extremely attractive for a major bank. However, it’s subject to the tax complications referred to above, the offer is only available in Sterling (there are options to deposit in EUR, AUD and USD but the rates here are far less attractive so basically going down this route effectively prevents the exploitation of currency opportunities), it was for amounts of Stg 50,000 only and it was a limited offer which is no longer available.
In contrast LM’s range of mortgage backed quasi-deposits are available in a wide range of currencies, can be structured so that, quite legally, they don’t need to be declared to the UK taxman and currently offer the following rates: Fixed Terms

Annualised Rates	AUD	JPY	USD	EUR	GBP	CAD	HKD	SGD	NZD
12 Month	7.50%	1.80%	6.07%	4.72%	6.30%	4.95%	4.81%	4.23%	7.87%
9 Month	6.00%	1.71%	5.94%	4.59%	6.16%	4.77%	4.68%	4.14%	7.78%
3 Month	5.00%	1.57%	5.76%	4.45%	5.98%	4.54%	4.50%	4.05%	7.69%

In addition terms ranging from instant access to 4 year fixed are available as are rates in all readily convertible currencies. Also, the more restrictive Managed Performance Fund - only available in AUD - has been paying rates of 10% per annum since 2001.
These are the rates for the minimum investment of just AUD 10,000 (more like GBP4,000 for our Sterling-oriented clients). For higher amounts or for institutional investments, such as through investment bonds even better rates apply. This is one reason why LM’s quasi-deposits are approved as one of the eligible cash investments within the range of portfolios managed for MBMG clients by MitonOptimal.
LM is just one example of ‘smarter’ quasi-deposits available - there are other fixed and variable opportunities that are more attractive than cash and now in many ways more flexible, far easier and without the taxation and compliance headaches.
Even for those investors who, for whatever reason, only want traditional bank deposits - it’s far smarter to hold these within an offshore bond. By doing so, this negates the need to choose between either losing withholding tax on the interest or having the interest reported to the relevant tax authorities AND also provides a perfectly legitimate offshore vehicle where interest can be earned gross without deduction of tax. This method also means that an efficient advisor can review your deposits regularly and simply switch them within the bond to the best paying deposit account that suits your currency and timescale requirements. For that reason we welcomed HSBC’s limited offer and bought into it in March in the knowledge that if their rates revert to something lower in June we can simply move this money on again to whatever is bets at that time and there is no cost or headache for our clients. In fact there is not even any paperwork for most of them who delegate the administrative responsibility to ourselves.
Traditional offshore deposit accounts were anachronisms before the latest tax issues reared their heads - now they’re even more out of step.
Above we have talked about the tax-inefficiency of offshore bank accounts. Let’s just take a look at how that works in practice. For simplicity’s sake let’s assume that a Mr.Jones is an expatriate living in Bangkok who has GBP100,000 to deposit, the best available rates for deposits remains at around 5% per annum over the period we’re reviewing and that he withdraws all of this interest each year. After 5 years he returns to the
UK, where as a higher rate taxpayer he continues his withdrawals.
Let’s look at what happens with his bank account (let’s pretend that he doesn’t actually lose any money despite the lost interest, the time and cost of sending faxes and letters and the bank charges to switch bank accounts twice a year in order to ensure that he continues to receive the top 5% rate, even when his existing bank reduces rates/ceases special offers/gets greedier). Let’s also look at an offshore bond where this is done automatically for him (in both cases we’re also assuming that the 5% rate is net of bank/bond charges).
For the first 5 years, as a non-resident of the UK, neither the bank account nor the bond appear to be any different - Mr. Jones receives his GBP5,000 tax-free (without having to do anything for it in the case of the bond although with great expenditure of both time and effort in the case of the bank account). When Mr. Jones returns to the UK, the situation changes. Dramatically! With the bank account he has 2 options:
1) Run the risk of making false declarations to HMRC in his tax return every year about his offshore interest (in which case he will have to suffer the 35% deduction at source reducing his Stg 5,000 per year to Stg 3250)
2) Declare the interest to HMRC on his annual tax return and pay tax at (presumably) 40%, reducing the Stg 5,000 to Stg 3,000.
This is not good. This has the effect of reducing the 5% return to just 3.25% or 3% respectively.
What about the offshore bond? Well due to the deferral provisions within the taxation code for the taxation of such bonds, Mr. Jones can continue to withdraw his GBP5,000 per year without paying a penny in tax for the 20 years after his return to the UK - admittedly if he continues after that he does get taxed but at a rate reduced initially by 20% to reflect the proportion of time spent overseas and also by any unused previous year tax allowances or rate bands. Calculating that gets extremely messy but over the first 20 years the effect is that Mr Jones is GBP2,000 per year better of (i.e. Stg 40,000 in total) and in his 21st year after returning at least Stg 400 better off and potentially far more.
To our mind, that’s not a realistic example. However, as the expectation would be that a much better return could be generated from onshore quasi deposits than from traditional deposit accounts we must consider it and then compare with offshore.
Let’s assume that each year he generates a net return of 7.5% income but simply withdraws GBP5,000 leaving the balance invested accruing interest. In this case there are no tax consequences for the accrued but undispersed amount every year while he is offshore and also no consequences after his return. In which case not only has Mr. Jones managed to generate GBP40,400 more income during the term but also has a capital sum of GBP148,450 as opposed to GBP100,000. Sounds like a no-brainer. So why are there still so many Mr. Jones with money sitting in offshore banks? Beats us - especially as offshore branches of UK banks are becomingly increasingly cosy with Her Majesty’s Revenue Commissioners in terms of divulging information.
The latest development in this story is that following the process whereby The HMRC has obtained details on offshore accounts, a partial amnesty is to be offered to people who have evaded tax by keeping their funds into an offshore account during periods of UK residence. People that own up to tax evasion will pay back taxes with interest and be fined 10% of the tax owed. However, if they do not come forward they face a full Revenue & Customs investigation and fine equivalent to 100% of any tax owed. The Revenue has details on thousands of accounts held with the offshore branches of major EU and UK banks. Experts have estimated that the Revenue could gather up to GBP1bn through this measure. Offshore bank accounts have long been targeted by the Revenue. UK banks and building societies have heavily marketed offshore accounts held in locations such as the Isle of Man and Channel Islands but some UK residents have been transferring funds offshore simply to evade tax. UK residents can hold money offshore but it is illegal to conceal any interest earned from the Revenue. In a series of recent legal rulings major UK banks have had to disclose details of offshore accounts to the Revenue.Offshore account holders have until 22 June to tell the Revenue that there is tax to pay on an offshore bank account. People would be well advised to own up now and take advantage of the amnesty.
If account holders miss this deadline, the Revenue warn they will face an investigation and will not be able to take advantage of a partial amnesty currently on offer. “People must come forward now. Failure to come forward will mean that we will go into full enforcement mode,” a Revenue spokesman said. “We have all the information we need and we will catch them and they could face fines of up to 100% of back taxes,” he added. Chas Roy-Chowdury, head of taxation at the Association of Chartered Certified Accountants, said that Revenue investigations often opened up a can of worms.”People would be well advised to own up now and take advantage of the amnesty. Any Revenue investigation may prompt uncomfortable questions about how they came about the cash in the first place, other fines and investigations may follow. These people have evaded tax and the Revenue wants them back on the straight and narrow,” Mr Chowdury added. Full information about the deadline can be found on the Revenue website. Again, it must be stressed that for investors into offshore bonds, no such difficulties arise.
The question has been asked before in this column but it must be again, why not help yourself to earn more money for you and not Gordon Brown?

The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected]@mbmg-international.com.com

Snap Shots: by Harry Flashman

Coming out of the shadows

I picked up an old book the other evening, “The Pictorial Cyclopedia of Photography”. Published in 1968, it was well before the digital revolution (though that should be “digital evolution” to be more correct). Black and white photography was strong, as was DIY processing and development. However, the major factor that came through to me was the predominant use of shadow. It was not a case of using bright colors in your photographs to make them stand out, it was a case of contrast by using black shadows. It made me think again about the true nature of photography.

Helmut Newton classic shadows.
The true “definition” of photography has often been said as “painting with light” and quite honestly, this concept of painting with light is one of the more exciting aspects of photography. It is also something that even the weekend photographer can experiment with and produce photographs that will amaze not just you, but also those who view them, with their ability to leap off the paper.
The secret of painting with light is to remember that all photographs should have a mixture of light, and its opposite, called shadow. Blasting the subject with a sea of light produces flat, wishy-washy photographs. This is why I am not in favor of the in-camera flash that pumps out enough light power to illuminate the moon. To produce prints with depth requires shadow. Just as when you look at a house, the sun casts a shadow which gives the house depth, as well as height and width. Depth is the third dimension, and without it you only have a two dimensional flat image. For the impression of 3D, you need shadow.
Now getting back to the job of taking photographs and painting with a bit of light. The usual light source is the one I like to call the Great Celestial Light Technician. This is more commonly referred to as the sun. Now the sun will supply enough light to illuminate half the world at one sitting, so there’s plenty of power for your subject and then some.
However, that sunlight is not all that suitable for most of the day, because when the sun is directly overhead, you do not get nice shadows. In the early mornings or late afternoons, when the sun is closer to the horizon, the shadows are longer, more visible and give more depth. So as well as being a more flattering light in the golden glow afternoons, the sun is at a better angle to give good shadows. So to improve your daytime shots only shoot between sunrise and 9 a.m. and 4 p.m. till sunset.
Do not be afraid to let shadow into the shot. Position your subject so that they are not square on to the sun, but let the light come from about 45 degrees across the subject. Shadow adds mystery. Shadow adds that extra something. Use it!
Now let’s look at when you provide the principal source of light, after the sun has disappeared. There are actually many sources of light after dark – there is the electronic flash, both the “on camera” type and the off camera type, there are tungsten studio lights, there are tungsten spotlights (like the garden varieties), there are street lights, neon lights and even car headlights. All these light sources are at you beck and call, and all (other than the on camera flash) can work for you to produce great shots. Just look at where the shadows lie, like Helmut Newton’s night photograph reproduced here.
Many of you have a small flash unit that slips on to the “shoe” on the top of your camera. Do not use it there! Go and invest in a remote shoe. This comes with some electric cord that plugs into the camera body and has a shoe plate at the end of it that slips over the foot of your flash. You can buy extension cords too, and I would advise getting one about three meters long. Now you can position your subject anywhere you like and let the flash come down upon the subject at 45 degrees and you will get a much better photograph than the flash on top of camera straight on shot. Try it.

Modern Medicine: by Dr. Iain Corness, Consultant

Getting to grips with ‘Arthur’

As you get older, you will get to meet ‘Arthur’. That’s almost a 100 percent money-back guarantee. And since it is my money that might go astray, I must be very confident. The “Arthur” I am referring to is one of the banes of mankind and is “arthritis”.
Unfortunately, there are many types of arthritis, and descriptions of these go back into antiquity. Perhaps the oldest known type of arthritis, called gout or gouty arthritis, has been described since Hippocrates in the 5th century B.C. In fact, at one time, the term “gout” was used to describe all types of arthritis. Then it was known as the “Disease of Kings” due to its association with rich foods and alcohol consumption, something in which the commoners were not able to indulge. Things have certainly changed.
One of the most common forms of arthritis today is osteo-arthritis, and rather than being of a biochemical nature, osteo-arthritis is much more of a mechanical wear and tear situation. In America, the estimated incidence is that 37 million adults are suffering from it.
Unfortunately, we all wear out. Joints in particular are mechanical devices, with one bone sliding on another with a slippery bit (called cartilage) in between as the bearing surface, cum-shock absorber.
Most joints, especially knee joints, are designed to last our three score years and ten, and that’s about it. We do know why they wear out, and because they are mechanical, increase the loading on the joint and it wears out quicker. Imagine that your knee has been designed to hold up 80 kg for 70 years, and now increase that loading to 120 kg. That same knee now has to support 50 percent more than it was ‘designed’ for, so you can expect it to wear out 50 percent sooner. Simple.
So they hobble down to the doctor and ask for something for the pain. The doctor flips mentally through the latest medical drugs for this condition, and most probably will hand over some Non Steroidal Anti Inflammatory drugs (NSAID’s) and tell the patient to lose weight.
Now I am not saying that this is totally wrong – but - when the NSAID’s first came out (hands up all those who remember Indocid) they were heralded as being the answer to these problems. Some were even supposed to ‘grow’ new cartilage. The answer the osteo-arthitic’s prayers.
Unfortunately, we very quickly found that Indocid and its ilk drilled holes in the lining of the stomach and were more than slightly dangerous. So we developed newer and better and more stomach-sparing NSAID’s. Unfortunately, these too produced problems.
Nothing daunted, we came up with even newer and more wonderful NSAID’s, which came with even newer and more wonderful array of side effects. So wonderful that one called Vioxx had to be withdrawn by the manufacturers.
So what can the poor patient do? Most patients have already tried paracetamol, hot water bottles, someone else’s great new tablets, NZ green lipped mussels, a cabbage leaf (which does work for mastitis, or so the ladies tell me), various herbal or homoeopathic medications, yoga, meditation, copper bracelets, muttering mantras and goodness knows what else. Exercise does help to improve the mobility in the knee joint, and by strengthening the muscles and ligaments around the knee, give it more stability. But it will not re-grow cartilage.
There is another avenue in the treatment, and that is direct injections into the affected joints. This produces spectacular results, which unfortunately are short lived. However, even a couple of weeks can make it such that the person can go on holidays and actually enjoy some mobility. But it is not the long-term answer.
Finally, there is surgery, which currently is the treatment of last resort. Since around 90 percent of patients, show lessening of pain, improvement in functional status and overall quality of life, I think we should be looking at operation sooner, rather than later. But that’s just my opinion.

Learn to Live to Learn: with Andrew Watson

Education – a political narrative?

If education is necessarily a political narrative as Zsebik (2004) maintains, then International schools are in both an enviable and serious position regarding the very nature of their being. Enviable, because to be able to celebrate what Rabbi Jonathan Sacks (2002) calls, ‘The Dignity of Difference’ by embracing a range of religions, belief systems, races, languages and cultures seems to me, to be 21st century educational utopia. Serious, because the responsibility is great indeed, to remain inclusive and compassionate on the one hand, yet resolute, critical and firm on the other. In describing International schools as “the building of bridges not of walls” Gellar (1993) reaffirms Walker and Mead; “It is the child experiencing togetherness with different and unique individuals; not just toleration but enjoyment of the differences”.
However, if we are looking for common cultural denominators then things become more difficult; establishing any kind of set of “universals” in cross cultural terms is problematic. However, it is possible to distinguish between International schools and ‘internationally minded’ schools, so far as one would expect a clear and unambiguous statement of universal values to be made as an essential part of the ethos of international education. Whilst it is important to recognise that ‘international education’ is not necessarily synonymous with ‘International schools’, it would appear naive to imagine that schools always share even the ideological goals of the accreditation and authorisation bodies. Formal curriculum is only a piece in the puzzle. In my view, Cole-Baker (1994) rightly asserts that, “An environment based on personal contact amongst students and staff is more powerful in creating an environment in which suspicion and hatred disappear.” Third Culture Kids (TCKs) tend to develop what Howard Gardner (2005) calls ‘Interpersonal intelligence’ (an ability to perceive and understand other individuals) and Intrapersonal intelligence (an understanding of one’s own emotions.)
In research undertaken in 1999 by Pollock and Van Reken, a TCK testifies to being able to speak the “language of the soul” with other TCKs. This wonderful revelation resonates very strongly with Paulo Coelho’s “Alchemist”. In this epic tale, the hero also comes to understand the ‘language’ of his soul. But, if language is the voice of culture, do TCKs have a language of daily communication, such as the Kibbutz pioneers enjoyed with the reinvention of Hebrew? In Israel there is a saying that mothers learn ‘mother tongue’ from their children. I propose that the natural mode of communication for TCKs mirrors their technological environment and is the Internet, MSN and text messaging, as well as Chinese, English and Spanish, the dominant languages of the world. For the TCK, short cuts in communication have resulted in short cuts to understanding in a world full of abbreviations and acronyms. It is a natural part of the evolution of language, from Jane Austen, through Hip Hop to MSN. TCKs are pioneers in the field.
Adopting a positive mental attitude, it is exciting to imagine that TCKs might be in a position to paint a brighter future for the world. But it is perhaps salient to recall other visions of “new worlds” and how the reality seems only to have served to increase global social, economic and political division. For instance, George Bush senior’s dream of a post-cold war ‘New World Order’ (1991) characterised by a world of open borders, seems to have been hijacked by self-interest groups playing the old song of tribal allegiance, peddling the outdated philosophy of confrontation and tacitly promoting the clash of civilisations, (some might count his son George W. amongst them). ‘Uncle’ George Walker (2003) puts it thus; “Despite many examples of different kinds of ‘rightness’, the long tradition of Western philosophy has tended to encourage the search for the truth, rather than a truth.” How right (as ever) is Uncle George in his assessment. Rabbi Jonathan Sacks (2002) writes: “Men kill because they possess the truth while their opponents are in error…. Truth on earth is not, nor can it aspire to be, the whole truth. It is limited, not comprehensive; particular, not universal. When two propositions conflict it is not necessarily because one is true and the other false. It may be, and often is, that each represents a different perspective on reality, an alternative way of structuring order…. In heaven there is truth; on earth there are truths.”
I have lost count of the number of times I have witnessed westerners presuming (not always intentionally) that they are right on the basis of race. In the worst case scenario, I witnessed the obese outrage of a de facto senior member of staff using overtly racist language and presuming that others, on the basis of hierarchical deference, would follow suit. I am afraid that some of these dinosaurs survive. But not for long. I suggest that considering TCKs in the context of global politics remains cause for hope. The Pioneers pave the way for more like themselves. The process of acculturation brings the TCK pioneer closer to the world view of the San people of the Kalahari, who rejoice in the understanding that they belong to the earth, rather than the earth belonging to them, who not only recognise, but celebrate, interdependence with their environment. Through balanced curricula in International schools in part, but mainly as a result of simply living TCK lives, it seems reasonable to expect that at least some of these TCKs will end up as leaders, just as their International schools promised and will be able to put their learning into practice on the global stage onto which they were originally cast. And just as they are increasingly able to recognize impostors in the teaching and management of schools, so they will be able to weed out those displaying similar characteristics of incompetence in the wider world. Their day will come.
If we accept that culture is both the medium of communication and itself a communicated message (as many before have maintained) then TCKs are in a position as Ghandi has it, to “Be the change they want to see in the world”. Edward T. Hall writes that, “The future depends on humanity’s ability to transcend the limits of individual culture”. (www.worldweave.com) Part of a Diaspora by definition, the TCK pioneer is perfectly equipped to play a leading role in such a future.
All proceeds from this column are donated to the Esther Benjamins Trust. www.ebtrust.org.uk email: [email protected]
Next week: Teaching and learning in the curriculum