Offshore Money Management
The idea of "offshore" money management has long seemed a very attractive option. Getting a combination of the best saving rates and the lowest taxes would, at first glance, appear to be the perfect situation.
The other side of the coin (if you'll excuse the pun), is that offshore "tax havens" are usually seen as being the territory of the rich. You've got to have a considerable amount of money to invest before it's worth doing.
Not too many years ago that might well have been true, but the internet has had just as dramatic an impact on banking as it has in other areas. So is now the time to start thinking about putting some of your money into Jersey or the Bahamas? Or is it still best kept in a savings account in the UK?
Offshore For Everyone?
There's a myth that offshore accounts are few and far between. In fact there are hundreds, with many available from the well-known High Street banks based here in the UK. If, after weighing up all the pros and cons, it seems like the right thing for you then you'll find plenty of choice - although the amount you have to open an account with might put some of them out of reach.
Offshore accounts that can be opened with just a few pounds do exist - but it's unlikely you'll see much return from them. If interest on savings is what drives your decision, you're going to want at least a couple of thousand to start with.
The question is not normally whether you can open an account, it's whether doing so is financially beneficial. Will you get the best saving rates? Will you pay less to Her Majesty's Revenue and Customs? If you travel abroad on business frequently, is it a more convenient way to access different currencies?
Although offshore banks are often portrayed as providing a safe haven for the ill-gotten gains of criminals, most are really just another bank - offering pretty much the same services as your local branch. Local financial rules will mean there are almost certain to be some differences but, generally speaking, a bank is a bank is a bank.
So you might find a higher interest rate for your savings abroad. You might also find that you are better off because of a favourable tax rate. However, there's one very important element in all this monetary juggling that can't be overlooked: unless you're going to move abroad permanently, sooner or later your money has to come back to the UK.
When it does, two things could have a tremendous impact. First, the exchange rate. It's possible to move money overseas and keep it in Sterling, but often it's converted to the local currency. Changing it back to pounds and pence can quickly wipe out any gains.
The second thing is tax. Our friends at HMRC are very keen to ensure that nobody avoids their responsibilities at home. In fact, since the first big crackdown back in 2011 that found over half a million "hidden" offshore accounts the government has spent more than a billion pounds in the pursuit of missing revenue. That sounds like an awful lot of money, but HMRC estimates they get three times that amount back in recovered tax.
So if you thought about using an offshore account as a way of avoiding payment, think again. International banking co-operation makes discovery extremely likely, with severe fines and even jail time as penalties. Depending on your personal situation there may still be advantages in using a tax haven like the Isle of Man or the Cayman Islands, but the majority of UK residents will still end up paying some tax eventually.
Safer To Save At Home?
Saving in an offshore account can quickly change from looking like a really good idea to bordering on illegal - but the latter is only true for those who deliberately try to flout the law.
The big question is whether it's worth doing. Whether the benefits outweight the complexities. The answer to that will, of course, depend on your situation. For some people it might be precisely what their tax consultant recommends. If you do business abroad there may be advantages. In either case, getting interest on money that would otherwise be idle is a bonus worth having.
But looking for an offshore account simply as a vehicle that will offer the best saving rates? You'll probably be disappointed. In the world of finance it's dangerous to say never but, for the vast majority of people, there's probably a home-grown product that will perform every bit as well - and will be considerably easier for you to manage.
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