Home » Do Expats Really Need An Offshore Bank Account?

Do Expats Really Need An Offshore Bank Account?

Some expats will benefit from offshore banking while others will not but there’s no doubt that expats can save tax by placing their savings in offshore accounts.

This is particularly helpful for British expats, for example, who are classed as being UK non-resident since they will not need to pay income tax on the interest from their savings.

However, any income earned on savings for an account held in the UK will be taxed at 20% at source.To avoid having income tax deducted from the interest on savings, British expats tend to consider offshore accounts in the Channel Islands, which is Guernsey and Jersey, as well as the Isle of Man.

This is because these jurisdictions do not deduct income tax from interest on savings so for expats working overseas who pay their earnings into the same account, they can thenearn the gross interest rate.

Funds deposited with a building society or bank

For those expats who have funds deposited with a building society or bank located in the UK then it would make financial sense to move these funds offshore as soon as the expat moves overseas.

Get Our Best Articles Every Month!

Get our free moving abroad email course AND our top stories in your inbox every month

Unsubscribe any time. We respect your privacy - read our privacy policy.

However, they should delay the date at which interest is credited until they leave the UK so they can begin accumulating interest tax-free before they head to their new posting.

It’s also worth noting that the expat should close their offshore account before they return to the UK so all of the interest earned on the funds will be paid tax free since they will still be living outside the UK.

Offshore bank accounts are also particularly attractive for those expats who are travelling around various countries and need a neutral and convenient place to keep their money.

The idea is to leave the money untouched in the account so that it will earn untaxed interest rather than shifting funds from country-to-country which will lose interest and create inconvenience.

Expats also need to appreciate that they can operate their offshore account effectively either by telephone or secure Internet messaging.

Another major plus point for having an offshore bank account is that they are geared towards expats and those who have international careers so the accounts offer a range of currency facilities that enables the customer to borrow or save in a variety of currencies, including sterling.

For British expats, they will be looking to be classed as non-resident but this is a beneficial status and the rules can be complex; it is always worth seeking professional tax advice.

For US expats, the reasons for having an offshore bank account will be the same as those discussed above though they will need to remember to comply with the tax requirements under the Foreign Bank Account Report – or (FBAR) – regulations.

That’s because since 1970, American taxpayers have been required to report certain offshore accounts so the authorities know the money is not being used to avoid paying US taxes.

American expats should also appreciate that since 2008, the federal government has increasingly looked to strengthen FBAR enforcement which has been underpinned, in 2010, by the Foreign Account Tax Compliance Act (FATCA) which compels foreign banks to reveal details of all accounts held by American taxpayers.

Seek professional tax advice

It’s a good idea for US expats to seek professional tax advice since they will also need to file a tax return to the Inland Revenue Services in addition to paying taxes in their new country.

Many other expats should also appreciate they will need to declare their offshore bank account and details to meet with ever increasing banking regulations.

One of the biggest attractions for having an offshore bank account is to access wealth management expertise which many of these account providers offer.

While most of them will require a large balance and a sizeable income, they are worth considering since the wealth manager will be easy to contact and have experience in boosting savings and ensuring the expat gets the best possible returns on the money they earn.

Some expats may be wondering about the regulations of offshore banks since many people believe this to be something of a shady area of banking but many offshore banks are now strictly regulated and expats should ensure their provider is regulated.

For peace of mind, British expats should head for a ‘big name’ bank which offers offshore bank accounts based in the Channel Islands since many industry experts believe this is a secure location for offshore transactions.

While offshore bank accounts are great for savings, they are easy to withdraw money from as well, and for those who work in several countries they offer security and privacy.

Some expats may come from a country that does not tax foreign income unless it is remitted to their home country which gives them a big advantage in holding the money in an offshore account and not paying tax on their income until they move the money onshore.

When should expats have an offshore bank account?

Perhaps the biggest and most important reason for expats having an offshore bank account while working overseas, particularly for British expats, is that their banking choices become restricted once they leave for an overseas job.

This is because most UK banks will insist that their customer is a UK resident for tax purposes before they accept money from them; this stance may also cause issues for expats returning to the UK and who want to open a new bank account.

Another big issue here is that UK paid pensions will only forward monies to a British bank account rather than one that’s overseas or is offshore which complicates issues for expat retirees.

The best way of finding out the definitive answer is for an expat to consult with a specialist tax adviser who can maximise the most effective way for expats to enjoy their hard-earned cash.

Latest Videos

Expat Focus Financial Update February 2024 #expat #expatlife

Expat Focus 28 February 2024 2:53 pm

This error message is only visible to WordPress admins

Important: No API Key Entered.

Many features are not available without adding an API Key. Please go to the YouTube Feeds settings page to add an API key after following these instructions.