Most offshore savings accounts are now very similar to those available
on the UK mainland. Offshore accounts are simple to use and have
straightforward terms and conditions. You can operate many of the
accounts by internet, post and telephone even if you don’t live near the
offshore branch of one of the banks.
Just like mainland
accounts, there are fixed and variable rates to choose from. Instant
access accounts are usually best if you think you’ll want your money in a
hurry. If you’re saving up for something special, then a longer term
notice account may be better. Up to 180 days is usually the longest
notice period on variable rate accounts. Sometimes variable rate bonds
are available for longer periods.
Variable rates can go down as
well as up. Fixed rates, on the other hand, stay at the same interest
rate for a pre-determined period of time, usually between three months
and five years.The main difference between offshore and mainland accounts is likely to be in the depositor protection scheme.
This scheme applies should the bank or other institution you have put
your savings into run into difficulties and be unable to pay back your
Offshore banking simply means holding an account in a country where you don’t live. Many offshore banking centres tend to be small islands or principalities with favourable tax regimes – such as the UK crown dependencies of Jersey, Guernsey, the Isle of Man and Gibraltar.
Because costs are lower to banks operating in these offshore centres, they can offer higher rates of interest than those offered by their UK-based parent companies. They also have reputations as tax havens because you may be able to pay less tax than if you held your savings in the UK (depending on your situation).
Banking offshore offers notable advantages if you live and/or work abroad, or own property overseas.
Just because you bank outside of the UK, it doesn’t mean you avoid paying UK income tax on any interest you earn.
If you live and work in the UK, and receive interest from an offshore bank or savings account, you should declare it to HM Revenue & Customs on your Self Assessment tax return.
HM Revenue & Customs are very focussed on customers with offshore bank accounts in an effort to combat tax avoidance by UK taxpayers.
If you are in any way unsure about the tax situation if you have, or are considering an offshore account, you should seek independent advice from an accountant or financial adviser.
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