Offshore Accounts Guide
When you think of an offshore savings account, you probably think of a tax haven, which can sound a bit dodgy. But as long as you pay any tax due, offshore savings accounts are as legitimate as the deposit account at your local bank or building society.
Advantages of offshore accounts
Offshore savings accounts don’t suit everybody, but they offer distinct advantages for people who work or live abroad, frequently travel overseas or plan to retire to another country. First, you can pay money into your account in a variety of currencies, such as Euros or dollars. Second, you typically have access to the offshore bank’s foreign currency services. Interest on the money in an offshore account is usually paid gross, before any tax is deducted. This used to differ from UK savings accounts where the government automatically deducted 20% savings tax, but since April 6, 2016, interest has been paid gross on these accounts too.
Tax and interest
It’s important to make the distinction between gross interest and tax-free interest. Offshore savings accounts are not tax free. You still have to pay any tax owing to the relevant authority at the appropriate time. But the payment of gross interest allows you to hang onto the extra interest before the tax bill is due.
A number of offshore savings accounts in the EU do not pay gross interest. Instead, they automatically deduct retention or withholding tax at 35% in accordance with the EU Savings Tax Directive. It is therefore worth checking how the directive applies to an offshore savings account and whether the interest is paid gross.
Crackdown on tax evasion
Always be honest and open about your tax arrangements. The government is cracking down on tax evasion and you could end up in serious trouble if you try to dodge the tax man. Tax affairs can be complicated, so if you are in any doubt about your liabilities it is best to seek professional advice. It could work out cheaper than a fine!
Protection and guarantees
Popular offshore centres with UK residents include Jersey, Guernsey and the Isle of Man. Many of the big banks and building societies have offshore branches, so you might even be familiar with the name of the bank.
However, there is a BIG warning to be aware of. Offshore savings accounts don’t fall within the jurisdiction of the UK regulatory authorities so even if your money is held with an offshore arm of one of the main high street banks it won’t be covered by the Financial Services Compensation Scheme. So if that bank or building society goes bust, you could lose all your money. However, many offshore centres have their own compensation schemes, so you should always check any safeguards and guarantees as there may be some protection.
Rates of interest
The interest rates on offshore savings accounts are pretty much the same as the rates on standard accounts. You might not, however, be able to choose from the full range of deals. Most offshore banks and building societies offer only a handful of savings accounts. You should also watch out for any charges, particularly if you open a fixed-rate offshore account.
Finding the best deal
It’s easy to compare offshore accounts with MoneySupermarket’s free independent comparison service. You don’t have to trawl the market because we have details of a wide range of offshore accounts from the leading banks and building societies – all at the click of a mouse.