You don’t have to be a millionaire to enjoy the benefits of having an offshore bank account – they are open to everyone.
Expats living and working abroad find them useful since they can pay salaries and pensions in to the account with any currency and then withdraw in the currency where they live.
Most of these offshore accounts are offered by eight or nine of the big British banks and building societies.
The account is based in a country where the account holder doesn’t live – and for Brits that’s usually in Jersey, Guernsey, the Isle of Man or Gibraltar.
Opening an offshore bank account
The banks say offshore accounts are aimed at people who are travelling regularly, living and working abroad or are retiring overseas.
Starting an offshore bank account is easy and the terms for signing up have loosened in recent years – along with the minimum deposit.
The average minimum deposit is around £25,000, though some accounts will accept £5,000 – and others, which are more difficult to find, will open an account with £1.
The accounts work as onshore accounts and generally come with a debit card and cheque book.
Offshore banking advantages for expats
The main advantage for opening an offshore account as a British taxpayer is 20% tax is not deducted at source on any interest paid – but the income from offshore savings must be declared on a tax return.
By deferring the interest, an offshore account holder can earn more, because the amount remains untaxed for longer, though HM Revenue and Customs (HMRC) will still expect a share.
Disadvantages of offshore banking
Besides limited choice, other disadvantages include the inability to have an overdraft and not having a branch to visit, so all communication with the bank will be by letter or online.
Interest rates are usually lower than those paid by a UK account and any balance is not covered by the UK’s Financial Services Compensation Scheme (FSCS), so you may receive little or no compensation if things go wrong.
However, all offshore banks have to provide compensation depending on the rules for the territory where they are based.
For many, the pros of running an offshore bank account outweigh the cons if they live and work abroad.
Though anyone thinking of running an account to mitigate their tax bill should be aware that while these jurisdictions – for the present time – do not have to report the account details to HMRC, they do have to report the interest paid.
HMRC is then obliged to reveal that information under the European Savings Tax Directive to other EU tax authorities.
|click here to connect with an independent financial advisor for expert, whole of the market advice today.|