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Turner Little’s guide to offshore savings accounts

Offshore savings accounts are familiar to most people through media reports of celebrity scandals involving tax avoidance. However, the reality is that offshore account holders do have to pay tax, but there are other benefits that make them a good option.

Contrary to popular opinion, you don’t have to be massively wealthy to take advantage of these benefits. We’ve put together a quick guide to offshore savings accounts.

What exactly is an offshore savings account?

Think savings accounts held outside of your country of residence. So, if you live in the UK and want to open an offshore account, it will be located in a different country. The accounts can be used to save euros, dollars and other currencies, which is particularly useful for people whose salary isn’t paid in sterling. Most offshore accounts can be opened by any adult over 18, although some are only available to people living outside of the UK.

Sometimes you’ll need a deposit of £5,000 or £10,000 pounds to open an offshore account, but others ask for a minimum deposit of just £1. They are offered by private banks as well as many high street banks and building societies, and most offshore accounts available to people in the UK are based on the Isle of Man or the Channel Islands.

Is an offshore account right for you?

They’re not for everyone, but they’re good for people who work or live abroad, hope to retire to another country or regularly travel outside of the UK. Being able to save in the currency you’re paid or that you plan to use to fund your retirement, protects you from fluctuations in exchange rates.

Some people use offshore accounts to boost their returns by converting cash back to pounds when sterling is weak, but you could obviously lose out if you change back to pounds when the exchange rate is poor.

Offshore accounts can be cheap to open but can have high operating charges so make sure you enquire about ongoing transaction fees.

Different types of offshore accounts

You can open an offshore account with variable or fixed interest rates. You’ll generally be offered introductory bonuses with variable rate accounts, and they tend to offer easy access to your money. Fixed rate accounts, on the other hand, usually require you to wave goodbye to your savings for a period between one and five years.

How to open an offshore account

As long as you meet the bank’s minimum requirements, it’s straight forward to open an offshore savings account. Apply online or in branch and supply ID or follow any other steps to verify your identity. Out of necessity, and to prevent offshore accounts being used for money laundering, tax evasion or other illegal acts, there are various checks in place.

You may be asked about the kinds of transactions in your account, or you could be asked to supply financial references from your UK bank. When you’ve passed these steps and your application is successful, you can make your first deposit and start using the account.

How does the tax work?

While offshore savings accounts used to pay interest without deducting the 20% tax that standard savings accounts did, this changed in April 2016. They both now pay interest without deducting tax.

The introduction of the Personal Savings Allowance means that basic rate taxpayers don’t have to pay anything on the first £1,000 worth of interest. Higher rate taxpayers don’t have to pay tax on the first £500 worth of interest. However, interest earned above these thresholds is taxable with offshore savings accounts.

Any interest you earn from your offshore account must be declared to HM Revenue and Customs (HMRC) as self-assessment. You will then pay tax on it when they come back to you with their calculation

It is possible for savers to cash in on the delay between earning the interest and paying tax, as the extra money stays into their account and boosts the interest earned.

Turner Little offers Offshore Personal and Corporate bank accounts, as well as credit card accounts.

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

Turner Little and its affiliates do not provide tax, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.