British Expats - Do You Need An Offshore Bank Account?
The answer is, you may not. But Iain Yule reckons that most British expats will at some time, if not throughout their time abroad, find offshore banking useful in a number of ways.
First and foremost is the potentially huge tax saving you can make by placing your savings offshore. To take the example of Britons abroad, if you achieve UK non-resident status (see below) then you do not have to pay UK income tax on interest from your savings.
Trouble is, any savings income you earn from an account held back in the UK will automatically have tax at 20% deducted from it by the bank on behalf of the taxman.
So let’s look at some of the key elements of a move to banking offshore:
§ Using offshore centres
§ Moving your money
§ Getting the right currency
§ Achieving non-resident status
Using offshore centres
So you should consider sending your money to a bank account based in one of the offshore centres most trusted by British expatriates – the Isle of Man, and the Channel Islands of Jersey and Guernsey – where no income tax is deducted from savings interest.
You should also if you can have your earnings from overseas employment paid straight into the same account, so that you earn gross (i.e. untaxed) interest as soon as possible.
If you have funds on deposit with a bank or building society in the UK, it is sensible to move these offshore as soon as you know you will be moving abroad. If you can delay the date when interest is credited until after you leave, you can start accumulating tax-free interest even before you travel.
You should also close any offshore account before you return so that all interest is paid while you are still outside the tax net.
Moving your money
Another reason to open an offshore bank account is that it is a handy, neutral base to keep your money if you are travelling the world from country to country.
You can leave your money there gathering untaxed interest rather than shift it around endlessly as you move, with the inevitable loss of interest and the possibility that you fall into a tax net.
With secure internet messaging you can still operate your offshore account from however remote a destination your move takes you to.
Getting the right currency
Another reason to choose an offshore bank is that you are likely to find services which are attuned to the internationally-minded.
You will find a range of currency facilities, allowing you to save – and often to borrow – in currencies other than sterling.
Achieving non-resident status
If you are leaving the UK to work abroad you are provisionally considered non-resident from the day you leave. But this beneficial status has to be confirmed by you remaining out of the country – except for relatively brief visits home – for a complete tax year, which runs from 6 April until 5 April the next.
To retain non-residency you must comply with the rules of the UK Statutory Residence Test. These are complicated rules and you may need to seek professional tax help to make sure you comply.
If you cannot prove you are non-resident, the taxman will want his cut of your money.
Iain Yule is the Editorial Director of World of Expats.