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Offshore investments can seem to be too complicated a financial option, they are rarely associated with ease or convenience and this puts many people off. Yet offshore savings can be a simple way to increase your financial returns and reduce your tax burden.
What is offshore savings?
Offshore funds have been in existence since the 1960s, and so named because they were established originally in the island tax havens of the Caribbean and the English Channel. Investing your money in an account other that your country of residence is what is meant by offshore saving and the benefit is that this generally means that the savings will be subject to lower taxes.
To benefit from saving offshore the individual must either have residence offshore, or, for a resident in a high-tax area, there must be an offshore structure which distances offshore gains from the onshore tax net.
The most familiar places for offshore accounts for those of us in the United Kingdom are the Channel Islands and the Isle of Man; here you can take advantage of the flexible laws and financial incentives that are most appealing to offshore savers. Offshore savings does not mean that you never pay taxes; it gives you very good tax advantages when you declare your income. It is up to you to be aware of the restrictions made by your home country for opening an account.
There are many benefits to be offered from offshore savings, many accounts allow you to deposit money in Sterling, Euros or Dollars and allow you the freedom to withdraw cash and write cheques in any country. UK residents can gain from the tax rules which govern offshore accounts. Interest is paid gross without tax being deducted.
You must be aware that this interest must be declared as income on your self assessment tax return, yet this time deferral will mean that the interest can stack up and lead to a larger pay out in the long term and many people prefer to receive their interest gross because it allows them to manage their own tax affairs.
In addition to providing tax benefits, offshore funds can increase their returns through exposure to a wider range of assets. Regulations in the UK are restrictive to help protect the vulnerable consumer; therefore constraints on which ways money can be invested. These conditions are not applicable to offshore accounts thus there are a wider range of derivatives that can be invested in that the domestic saver can miss out on.
A diverse portfolio can add balance and reduce the volatile nature of investments. By spreading the investment, it becomes diverse and exposed to varying market conditions and investment styles and in this way progresses and can yield a greater return.
It must be noted that some offshore institutions are not covered by the UK Financial Services Compensation Scheme. Although many of the banks which offer offshore savings are subsidiaries of the big High Street banks, some will not meet any liabilities that their offshore subsidiaries cannot cover out of their own assets.
Types of Offshore Savings Accounts
Deferred Interest Accounts – These accounts only pay interest when you close your account, some providers also allow you to defer all of the interest. This is particularly advantageous as it allows planning for your tax liability over the year.
Euro Accounts – These accounts are particularly useful if you are travelling in between, or planning on spending time in a European country as they allow you to make transactions in Euros.
Fixed Rates Accounts – These accounts offer a fixed rate of interest over a certain period, regardless of fluctuations in interest rates. This type of account is ideal for people who wish to know exactly how much they are likely to earn on their savings.
Interest Paying Current Accounts – These accounts offer the ease of having a cheque book and cash card and do not require notice to withdraw funds.
Monthly Income Accounts – These accounts pay interest monthly, rather than annually or when the account matures. These accounts are especially useful if you are looking for a regular income from interest payments on your savings.
No Notice Accounts – Accounts which do not require you to give any notice to withdraw funds and allow you to do this without any penalty.
Notice Accounts – Here you must give notice to withdraw funds to avoid any sort of penalty. The amount of notice depends entirely on the provider and the account which you choose.
Checklist for Offshore Savings Accounts:
1. Do they have a minimum and maximum balance?
With certain savings accounts you have to provide a minimum balance that you must invest to open the account. Alliance and Leicester’s Offshore Call Account has a minimum opening balance of £10 and a maximum balance of £1 million.
2. Do they have a limit on the number of withdrawals you can make?
Some accounts may only allow a certain number of withdrawals over a fixed amount of time; if this is exceeded then interest on your savings can be lost. It is also worth finding out if you have to give notice that you are planning to make a withdrawal from your account.
3. Check returns when bonus rate ends.
Some savings accounts offer an attractive return in the beginning, including a bonus rate over a certain period of time, but this can plummet once the bonus rate comes to an end, possibly making your investment less worthwhile than it first appeared.
4. Does your account have a rate guarantee?
Some accounts will offer a guaranteed rate of interest, which tend to be based on the Bank of England base rate. These can have the same effect as a bonus.
5. Does your provider offer any conditional bonuses?
If your current account is held with the same provider you may gain a higher rate of interest, also if you do not make many withdrawals over a certain period you may gain a higher rate.
Offshore bank accounts provider in Channel Islands
- Ansbacher Channel Islands Ltd – specialise in private banking, yacht finance, investment management and fiduciary. The Ansbacher Banking Group currently has trading companies in four jurisdictions: United Kingdom, Guernsey, Jersey, and Switzerland.
- Barclays Wealth International - banking in Jersey, Guernsey, Gibraltar or the Isle of Man
- Kleinwort Benson Private Banking – Voted Best Private Bank 2008 at the Investors Chronicle/Financial Times Wealth Management Awards
- EFG Offshore Limited – based in Jersey. Private banking, wealth management, and fund administration service.
- HSBC International – Based in Jersey, Channel Islands, it provides banking service in over 200 countries and territories.
- Scarborough Channel Islands Limited – Guernsey based private banking
- RBC Wealth Management, International – Private banking, trust & fiduciary services, credit & financing solutions, investment solutions, tax consultancy.
- Standard Bank Offshore – Rooted in Africa. Wealth management institution.
Offshore bank accounts provider in Isle of Man
- Abbey International – Based in Jersey and part of the Santander Group.
- Allied Irish Offshore
- Allied Dunbar Bank International – Offers shares in various investment funds.
- Anglo Irish Bank Corporation Limited – Nationalised on 21 January 2009. Provides business lending, treasury, personal savings and private banking services. Currently operates in Ireland, UK, Germany, Austria, Isle of Man, Jersey and the USA.
- Bank of Bermuda Ltd – Member of HSBC Group.
- Bank of Ireland (I.O.M.) Limited
- Bank of Scotland International – Part of the Lloyds Banking Group.
- Barclays Wealth International
- Close Asset Management – Investment management, financial advice, banking and trusts, fund administration and custody.
- Duncan Lawrie – Private banking, trust & estate planning, financial planning, investment management.
- Fairbairn Private Bank – Awarded 2009 Best International Wealth Manager by International Investment magazine. Offices in the UK, Isle of Man, Jersey and South Africa.
- Irish Nationwide (I.O.M.) Limited – Wholly owned subsidiary of the Irish Nationwide Building Society
- Royal Skandia – Offshore savings product.
- AXA Isle of Man
- Standard Bank Offshore
- BNY Mellon – Asset management, asset servicing, wealth management, issuer services, treasury services, broker-dealer & advisor service.
- Zurich Bank International Limited – Established in the Isle of Man since 1984. Offers a full range of offshore banking services.
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