Guide to Offshore Banking
Offshore banking now more accessible to the small investor.
Offshore banking may still hold the stigma that it is only advantageous for very wealthy individuals looking for tax breaks, but with low minimum opening balances and a wide range of account terms, the offshore savings market is now open to a much larger audience. Application and operation of accounts is simple and can often be carried out through a variety of channels including, post, fax, telephone and internet.
The offshore savings account market has continued to grow steadily during recent years, now with over 190 accounts available to UK mainland residents and in some instances expats. The ‘expatriate-only’ market has been slow to catch up, still with only a handful of providers to choose from.
The range of offshore savings alternatives can be split between two distinctive groups, namely, UK expatriates and UK residents with interests or properties overseas.
UK expatriates market
Recent figures show that over five million Britons have upped sticks to work or retire in sunnier climes, in search of their dream lifestyle overseas. Sizeable British expatriate communities can now be found in over 100 countries, but when it comes to finding a new home for their savings the choice has been somewhat limited.
Therefore, the launch of the new ‘reward; account from Zurich Bank International in August would be a welcome boost to the expat community.
The Zurich Reward Account is available to expatriates and to residents of the Isle of Man and it currently pays 5.25% gross on any balance between £5k and £1m. The account is also one of the few accounts to offer a rate guarantee above base, guaranteeing to be 0.25% above bank base rate until 30/6/07, and not to be less than 0.25% under base until January 2010.
UK residents working overseas or with properties overseas
With the number of consumers buying second homes abroad, the demand for offshore accounts will continue to grow. No longer is it just the very rich that invest for the future with a holiday home in the sun, with the introduction of low-cost flights during the last few years, more people are now buying properties overseas, hence the requirement for accounts in say euros or US dollars.
A further benefit offered by some offshore accounts is the ability to defer the payment of interest until your account is closed, thus allowing you to receive payment in a tax year that is beneficial to your own financial situation.
New tax legislation
The European Tax Directive, which came into force on July 1, 2005, is an agreement between the European Union states, which require each country to exchange information with each other about EU residents who earn interest on savings and investments in one EU Member State, but live in another.
While the legal scope of the directive doesn't extend outside the EU, certain jurisdictions such as Switzerland, the Channel Islands and the Isle of Man, have agreed to put in place legislation that supports the aims of the directive.
Consumers must remember that they are responsible for declaring any interest that they earn to the necessary tax authorities.
EU residents are responsible for choosing whether they want their interest to be subject to retention tax, or exchange of information on the interest that they have earned. It is important to note that the default position is for retention tax to be applied.
For guidance see www.inlandrevenue.gov.uk.