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Expat
banking – be prepared
The upheaval, stress and – let’s face it –
chaos of moving home, possessions and possibly family abroad
can make it difficult to focus on the mundanities of a bank
account. But relying on your existing bank account to function
long-distance, or trusting to the local banks when you get to
your new country of residence, all too often has the result
that you lose out – on tax benefits, on bank services
you need, even on your credit rating.
With just a little preparation before you go you can make sure
you have the best bank account for your needs whether you are
in mid-career or retired, dividing your life between two locations,
or residing abroad long term.
Your first step should be to work out what type of bank account
you will need. To do this you can visit a tax adviser, who can
paint a broad picture of what the most tax efficient arrangements
for you will be, given your personal circumstances.
For many expats, the best banking solution is to have a local
currency account in the country you move to for day-to-day expenses,
and an offshore account to receive your salary and accumulate
savings.
For your day-to-day account, it is important to research what
is available in the country you are moving to. In many countries,
such as in the European Union, local banks can provide you with
everything you need for an account for day-to-day expenses.
But in other countries, you may need to build up a credit rating
from scratch or there may be problems with exchange controls.
Language differences may also make dealing with the local bank
difficult, or the banking system may simply be undeveloped.
Bureaucracy can also be frustrating, says Michael Chaytor, head
of sales and service at Bank of Scotland International in Jersey,
says: “Customers often find that they have to fill in
a lot of forms for anything they want from the local bank. Our
customers who were with us in the UK don’t have to do
this – we pass the information within the group.”
So it may be better to have your current account at an offshore
bank. Most offshore banks offer current accounts that provide
you with a cheque book and chip and pin card as well as telephone
and internet banking. Many of these banks are subsidiaries of
well known high street names such as Abbey, Barclays, HSBC,
Lloyds TSB, NatWest or Halifax Bank of Scotland.
To open an offshore account is simple. You do not need to visit
the bank in person, but can fill in the application forms online,
which you then print out, sign, and post to the bank.
In most cases you need between £1,000 and £5,000
pounds to open an offshore current account. But you should check
what charges the bank makes. Lloyds TSB’s Overseas Club
account has a minimum balance of only £100 but charges
an annual fee of £50. Barclays’ Expat Solutions
account has no annual fee, but has a minimum balance of £5,000
and charges £5 a month if your balance falls below this
level.
Whether you have your current account offshore or not, it is
often worthwhile to open an offshore account for your savings.
If you are a UK expat moving abroad for more than one tax year
you will not be liable for UK tax on your foreign income and
earnings. It is therefore usually prudent to save this money
in a low-tax, “offshore” centre. Accumulating your
savings offshore can also bring an attractive rate of interest.
Katherine Gadman, manager of intermediary relations at Anglo
Irish Bank in the Isle of Man, says: “The specialist offshore
bank can offer competitive interest rates for saver accounts
because it is does not have the overheads that onshore high
street banks have.”
A key factor in choosing an offshore savings account is the
access you want to have to your money. Savings accounts tend
to require 30, 60 or 90 days notice for withdrawals, and the
interest rate is higher for the longer notice periods.
What’s more, offshore banks can often provide cheaper
access to multi-currency services. For many expats this is vital,
as they find they need accounts in more than one currency –
for example, a dollar account to receive salary and a sterling
account to pay school fees back home. With good planning, you
can top up the sterling account as necessary, rather than converting
all your salary, and so keep foreign exchange commission to
a minimum.
When making your plans for multi-currency accounts, it’s
worth asking your employer whether you can be paid in your home
currency. Chaytor says: “We have clients from a Swiss
bank employed in the UK. They tend to get paid in sterling but
get their bonuses in their home currency. We offer dual-currency
accounts and they make the decision when to move the money between
the two.”
Most offshore banks offer dollar and euro as well as sterling
accounts. But you should shop around as account charges and
currency conversion rates vary widely.
Before selecting your offshore bank you should also think about
what other services the bank can provide you. Internet banking
services, allowing you to make payments and money transfers
online, can be extremely useful for expats who are in a different
country or time zone from their bank.
Many expats want to keep their UK bank accounts open while they
are abroad. But in most cases it is not necessary to keep your
UK account, and you should be aware that if you do, you may
be required to keep a minimum deposit. This would tie up money
that might earn more interest offshore.
The array of banking options can seem bewildering. But by preparing
before you move abroad – working out what your banking
needs will be and who can best meet them – you can make
sure you start your new life as an expat with a lot more security
– and a little less stress.
What is “offshore” banking?
Offshore banking is simply banking in a jurisdiction
other than the one in which you live. Offshore finance began
in the early 20th century when wealthy individuals and corporations
began moving assets outside their native countries to avoid
tax. This process really took off in the 1970s, when tax rates
rose sharply in several Western countries, and wealthy people
sought so-called tax havens for their money.
This kind of financial planning is called “offshore”
because the main centres for it are islands, which for various
historical reasons have tended to have low tax rates. But several
offshore centres are in fact landlocked, such as Luxembourg,
or part of the financial district of a major city, such as Dublin.
The world’s biggest offshore centre in terms of assets
is the Cayman Islands.
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