Tax Haven

What is offshore saving?

Offshore funds have been in existence since the 1960s, and so named because they were established originally in the island tax havens of the Caribbean and the English Channel. Investing your money in an account other that your country of residence is what is meant by offshore saving and the benefit is that this generally means that the savings will be subject to lower taxes.

To benefit from saving offshore the individual must either have residence offshore, or, for a resident in a high-tax area, there must be an offshore structure which distances offshore gains from the onshore tax net.

The most familiar places for offshore accounts for those of us in the United Kingdom are the Channel Islands and the Isle of Man, here you can take advantage of the flexible laws and financial incentives that are most appealing to offshore savers. Offshore saving does not mean that you never pay taxes, it gives you very good tax advantages when you declare you r income. It is up to you to be aware of the restrictions made by your home country for opening an account.

There are many benefits to be offered from offshore savings, many accounts allow you to deposit money in sterling, euros or dollars and allow you the freedom to cash, withdraw and write cheques in any country. UK residents can gain from the tax rules which govern offshore accounts. Interest is paid gross without tax being deducted.

You must be aware that this interest must be declared as income on your self assessment tax return, yet this time deferral will mean that the interest can stack up and lead to a larger pay out in the long term and many people prefer to receive their interest gross because it allows them to manage their own tax affairs.

In addition to providing tax benefits, offshore funds can increase their returns through exposure to a wider range of assets. Regulations in the UK are restrictive to help protect the vulnerable consumer; there are therefore constraints on which ways money can be invested. These conditions are not applicable to offshore accounts thus there are a wider range of derivatives that can be invested in that the domestic saver can miss out on.

A diverse portfolio can add balance and reduce the volatile nature of investments, by spreading the investment it becomes diverse and exposed to varying market conditions and investment styles and in this way progresses and can yield a greater return.

It must be noted that some offshore institutions are not covered by the UK Financial Services Compensation Scheme. Although many of the banks which offer offshore savings are subsidiaries of the big High Street banks, some will not meet any liabilities that their offshore subsidiaries cannot cover out of their own assets.

Types of Offshore Savings Accounts

Deferred Interest Accounts