Offshore savings accounts can be beneficial for those who work overseas or who travel regularly. This guide runs through all you need to know.
What is an offshore savings account?
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.
Can you get an offshore account if you live in the UK?
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.
Should you get an offshore account?
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.
How do you open an offshore account?
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
How do you manage offshore savings?
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.
Do you pay tax on offshore 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.
Is your money safe overseas?
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
What is an offshore savings account?
An offshore savings account is, simply put, a savings account that is based outside the UK but usually still open to UK residents or expats. These accounts may be suitable for Brits living abroad or frequently travelling across different countries and currencies.
Who can open an offshore savings account?
You don’t need a lot of money to open an offshore savings account. You do, however, need to adhere to either a British citizenship requirement (for expat accounts) or specific resident requirement, with some accounts open to Isle of Man, Channel Island and Gibraltar residents, or even UK residents.
While most of these accounts will ask for a minimum deposit of £5,000 or £10,000, there are some that can be opened with just a single pound. Again, whether such an account would be worth opening over an ‘onshore’ savings account would depend on your residency status and needs. Always compare offshore savings accounts with onshore equivalents as well as each other to help ensure you’re making the best possible choice.
How to open an offshore account
As with any savings account, different providers will offer different means of opening and operating their accounts. Some of the offshore providers are subsidiaries of the bigger UK banks and building societies, and these will likely have more account management options. You won’t need to book a trip abroad to open such an account, with many accounts being able to be opened by post, telephone or online.
While the opening requirements will differ between providers, they will all ask for proof of identity and proof of address, and will require you to be at least 18 years old. Some will have additional requirements, such as asking you to prove that you can afford to keep the account funded, although these kinds of requirements are more common with offshore bank accounts for everyday use (which tend to come with large fees).
Do you pay tax on offshore savings?
Unlike what you might think based on the news, the money in offshore savings accounts is not tax-free. For UK tax purposes, the same personal savings allowance is applied to any savings held in an offshore account, which means that basic rate taxpayers can earn the first £1,000 in savings interest per year without having to worry about taxation.
Anything above this will need to be declared through a self-assessment form with HMRC as income. While this means you would then have to pay some tax, there could be a welcome delay – depending on when you open an account and when the tax year ends – that allows you to add some more savings interest before taxation gets applied.
Remember that you may have to pay tax in the country you are residing in as well, so make sure you have everything sorted out fair and square – you don’t want to get into trouble with any government or pay double tax when you don’t need to. Given the numbers likely involved in all of this, you may even want to get professional advice so you can be sure you’re always declaring and paying the right amount for taxation.
Are offshore savings protected?
Offshore providers are not covered by the UK’s Financial Services Compensation Scheme which protects £85,000 of your savings per banking institution no matter what happens. However, there will be comparable compensation schemes, such as the Isle of Man’s Depositors’ Compensation Scheme, which protects up to £50,000 per individual depositor.
Any money held in an offshore account will not be subject to the UK Financial Services Compensation Scheme (FSCS). Check with the provider as to whether you will be protected by an alternative deposit protection scheme, depending on where the bank is located.
