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Wednesday January 3, 2007

Helen Pridham

Offshore financial products are of interest to a very wide range of people nowadays. Not just expatriates or people planning to become expatriates, but those who have moved to the UK from elsewhere and UK residents themselves. All may be able to benefit from the tax treatment and products available offshore in their financial planning.

Many familiar UK institutions have an offshore presence, while offshore investing is not just an activity for the super rich, with competitive products available for those with modest sums of a few thousand pounds to invest.

Tax benefits

Expatriates are the main users of offshore accounts. If you are living or working outside the UK, holding your money offshore and using an offshore bank well versed in dealing with the needs of expatriates has obvious practical attractions. But the main reason for using offshore products is for tax-planning purposes.

Steve Travis, manager at independent financial advisers The Fry Group, says: ?It makes sense as expats can keep their hard earned savings out of the clutches of the UK taxman. It avoids using up their UK personal allowance if they are receiving a pension or rental income from a property in the UK.?

For people planning to retire to the sun in a few years time, it can also be useful to start moving their savings offshore in advance so they can take advantage of lower local taxes when they settle in their new location.

Others who can benefit from using offshore accounts are people who are UK residents but non-domiciled. Anna Malcolm, client services manager at Investec Private Bank says: ?There are a large number of foreigners living or working temporarily in the UK. The tax regime in the UK is favourable for people in this position as they are only taxed on the income they earn in the UK or bring into the UK. Returns on offshore savings will not therefore be taxed if they are left in the offshore account.?

Holding money offshore does not mean savers necessarily escape tax. Anyone who is a UK resident and domiciled has a duty to report all their worldwide income to the UK tax authorities. But there have been concerns in Europe that EU residents were slipping through the tax net by placing their savings elsewhere, so in July 2005 the European Union Savings Directive was introduced to prevent it.

As a result, banks and building societies in the Channel Islands and the Isle of Man have given savers the choice of opting for ?exchange of information? ? that is having details of their interest payments sent to their local tax authorities ? or having a ?retention tax? deducted from their interest. The current rate of withholding tax is 15% but it will rise to 20% in 2008 and 35% in 2011.

Investment options

Apart from cash deposit accounts, there are also a wide variety of investment products to choose from offshore. Offshore investment bonds issued by insurance companies often offer investors access to a wide range of investment funds and allow returns to roll up virtually tax free until the bond is cashed. They are becoming increasingly popular in retirement and inheritance tax planning.

Increasingly offshore investment funds, such as hedge funds and property companies, are also being sold in the UK. Luxembourg is a major centre for offshore Oeics and managers offering funds there are making them more accessible to UK investors.

One perceived drawback of investing offshore is a low level of protection. In the UK, there is the Financial Services Compensation Scheme which means that bank and building society depositors get back up to 31,700 if an institution goes bust. Only the Isle of Man has its own deposit compensation scheme but the maximum is just 15,000. Others do not have compensation schemes but providers say that the likes of the Channel Islands, Isle of Man, Luxembourg and Dublin are well regulated nowadays. Most argue that security is provided as many companies offering offshore products are part of well-known international or UK groups.

Where to find them

deVere & Partners
Independent Offshore Financial Advisory Services Group

Aegon Scottish Equitable International


Bank of Scotland International

Bradford & Bingley International

Britannia International

Butterfield Private Bank

Close Private Bank

Fairbairn Private Bank

Fidelity Fundsnetwork

Investec Private Bank

Killik & Co

Nationwide International

NM Rothschild

Norwich Union International

Prudential International

Standard Bank

The Fry Group

Williams de Broe

Zurich Bank International

This article comes from our sister publication, the Money Observer
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