An offshore savings account lets you save your money overseas, but they are not the tax haven you might think. Here is how they work.
This article is designed to offer you impartial guidance as to your options and what they might mean, but the decision on which product to take out is yours.
Offshore savings accounts can be beneficial for those who work overseas or who travel regularly. This guide runs through all you need to know.
An offshore savings account is a savings account held in a different country to the one in which you live - in this case, one outside the UK.
Offshore savings accounts can be used to hold different currencies, making them useful if you regularly transfer money overseas or if you get paid in a currency other than sterling.
Although they are often associated with issues such as tax evasion, in reality, they are more likely to be used by expats and people working overseas.
Yes, but only a small number are available for UK residents to open.
To open most offshore savings accounts you need to live in the country you are trying to open an account in; for example, be a resident of the Isle of Man.
This will depend on your situation. If you plan to work abroad, or you are hoping to retire or live overseas, an offshore account is likely to be of benefit.
If not, it is unlikely to be worth it - unless you can find an offshore savings account that offers a much higher interest rate compared to UK-based accounts.
You have a much larger choice of savings accounts available for you to open in the UK.
You can compare UK-based savings accounts here.
This will depend on the account you choose, but many of the UK high street banks and building societies have an offshore arm which can make the process much easier. You won’t need to travel to the country you’re opening the account in and instead, you can usually open the account online, over the phone or even by post.
When you open your offshore account, you will need to provide proof of ID and proof of address. Some banks may also ask you to explain:
Why you want to open it
Where your money has come from; e.g. inheritance, selling a home, income etc
If you plan to make any large deposits over the next 12 months, and the reason for them
You can make withdrawals online by transferring your money to your bank account in the UK.
You can also transfer money from your UK bank account into your offshore savings account when you want to top up your savings.
Yes – saving in an offshore savings account is not tax-free. In terms of UK tax, you will still benefit from the Personal Savings Allowance. But anything above this must be declared to HMRC and you must pay any income tax due.
You can do that by completing a self-assessment form at the end of the tax year.
However, depending on when you open an account and when the tax year ends, you may benefit from a delay between earning interest and having to pay tax on it. This delay could enable you to earn a small amount of extra interest on your savings.
Depending on where your offshore account is based, you may also have to pay overseas tax on top.
The main alternative to an offshore account is a multi-currency account. Sometimes also known as foreign currency accounts, these allow you to make and receive payments in different currencies, such as Euros, Dollars, Yen and so on. Some banks offer 10 or more different currencies, while others offer just a few, so make sure you research carefully according to your needs. Typically, these accounts can help you save on exchange rate fees, and are useful if you’re getting paid in another currency or thinking of retiring abroad. Many UK banks offer multi-currency accounts, which means you’ll be protected by the Financial Services Compensation Scheme if your provider goes bust.
There is usually a financial compensation scheme to protect your savings up to a set value.
Make sure you choose an offshore savings account that uses one of the following schemes:
IDCS - Isle of Man Depositors' Compensation Scheme, up to £50,000 a person
GBDCS - Guernsey Bank Deposit Compensation Scheme, up to £50,000 a person
JDCS - Jersey Depositor Compensation Scheme, up to £50,000 a person
GDGS - Gibraltar Deposit Guarantee Scheme, up to €100,000 a person
FGDR - French Deposit Guarantee Scheme*, up to €100,000 a person
DDGS - Dutch Central Bank's Deposit Guarantee Scheme, up to €100,000 a person
* Fonds de Garantie des Dépôts et de Résolution.
Means you can bank in another currency
Can delay your tax payment, meaning you may benefit from extra interest
Can reduce currency risk or exchange rate fees
More stringent opening criteria to qualify for an account
Typically higher fees than UK savings accounts
You might have to pay tax in the UK and abroad