Offshore account-holders are under attack from HM Revenue & Customs, which is now hoping to flush out Britons with billions of pounds hidden overseas.

Here is our guide to the safe way to save offshore.

What is the taxman doing?

The Revenue has been clamping down on British citizens and residents who use tax havens to hide income from offshore savings and investments.

The Revenue will offer account-holders a second chance to disclose their offshore arrangements in return for leniency. It will publish details about the scheme in the coming months.

Where are the tax havens?

Jersey, Guernsey, the Isle of Man, the Cayman Islands, Monaco and the Bahamas are attractive places to keep money because taxes are lower, or non-existent. For example, Monaco does not levy personal income tax; the Cayman Islands has no capital gains tax (CGT); and the Bahamas does not levy CGT or income and inheritance tax. On the Isle of Man no CGT or inheritance tax needs to be paid. Personal income tax is levied at just 10% on the first £10,500 and then 18%.

Is it legal to hold money offshore?

Yes — however you must pay tax on income or gains. UK citizens and residents are required to pay 20% or 40% income tax for a lower or higher rate taxpayer respectively. They must also pay 18% on capital gains.

Non-doms in Britain who do have a strong connection to another country are exempt from paying tax on income from assets held offshore.

However, since April, non-doms who have been resident in Britain for more than seven out of the past 10 tax years have the option of paying £30,000 a year to remain exempt from UK tax.

What offshore investment products are allowed?

You can cut your tax burden by using legitimate offshore savings and investment products.

Offshore bonds, available from UK insurers, provide some tax perks. For example, up to 5% of the capital invested in the bond can be withdrawn with no tax to pay until the entire bond is cashed.

This is helpful for those who expect to move from a higher-rate tax band to a lower one or plan to retire to a low-tax country. Your returns are likely to be higher with an offshore bond because they can grow tax free. If you invested £50,000 in an onshore bond, you would have a lump sum of £72,294 after 10 years with growth of 7% a year. Fees attached to offshore bonds can be expensive.

What about offshore funds?

Offshore cash funds are another legitimate product. They are set up to distribute dividends, not interest, and are subject to tax at 32.5% for a higher rate taxpayer or 10% at the basic rate.

Following changes unveiled in the budget, dividend income sourced overseas also became eligible for a tax credit worth 10%, taking the tax rate for a UK resident higher-rate taxpayer to 22.5% or 0% for a lower-rate taxpayer.

Are there places where the Revenue can’t get my details?

The European Savings Directive requires EU members to disclose details about known foreign nationals who have offshore bank accounts, or deduct a minimal rate of tax.

The Channel Islands have so far opted to pay tax rather than disclose details — however they will be required to begin sharing information from 2011.

Liechtenstein and Switzerland do not share information. Dubai, Hong Kong and Singapore have not signed up to the directive.