The term ‘offshore banking’ conjures up glamorous images of millionaires and tax evasion, but in reality it’s just another way of gaining interest on your money.
An offshore account may or may not be the right product for you. To find out you need to do your homework.
A number of British-based banks and building societies have offshore accounts in places like Jersey, Guernsey or the Isle of Man. They are aimed at British citizens living and working overseas and savers resident in the UK who want to benefit from deferring tax payments.
To open an offshore account you will probably have to invest a minimum of £5,000 or £10,000. As well as Sterling, accounts can be opened in Dollars, Euros and other currencies, but this means your savings will be subject to exchange rate fluctuations.
There are easy-access offshore accounts available, or you may have to give notice to withdraw cash. Some offer fixed interest rates, although these accounts are likely to apply limits on withdrawals.
When it comes to tax, there is no way of avoiding it, of course. However, unlike UK- based savings accounts where interest is paid net (with tax deducted), interest on offshore savings is paid gross. A key advantage of offshore accounts is the delay between earning interest and paying income tax on it which can be as much as 20 months.
This deferral period may mean extra interest, but make sure you shop around before opening an offshore savings account. Check whether there’s a UK-based bank or building society savings account with comparable interest rates.
Security is another important issue. When opening an account online make sure you know where the bank you are sending your money is based.
Offshore banks are not covered by the UK’s Financial Services Compensation Scheme (FSCS) which guarantees protection of the first £85,000 of any deposit held in UK onshore accounts. Outside this jurisdiction there is a risk that you could lose your money if the bank collapses.
It’s a good idea to check that the country in which you are investing your money has its own financial regulation standards and a consumer complaints system.
To find out more about offshore savings contact us.
