Executive Golf Magazine

Many people look to invest some of their money offshore in order to access different investment opportunities or as part of their tax planning. The offshore investment market has grown substantially over recent years to serve an ever expanding international investment market with the leading centres including Jersey, Guernsey, Isle of Man, Bahamas, Luxembourg, British Virgin Islands, Netherlands Antilles, Gibraltar and Cayman Islands.

As well as international finance companies, many UK banks and investmentinstitutionsoperatein these jurisdictions and provide products from them tocustomers in the UK and worldwide. The advantage of putting money in these centres has often been to save tax since they were traditionally low or no tax areas.

But tax rules have been tightened up in recent years, particularly with a new European Union directive being introduced which means that interest on deposits held in offshore centres is subject to a withholding tax. Offshore centres too have wanted to change their image and not be seen as tax evasion shelters.

The rates offered on money held on deposit in offshore accounts are no longer as attractive as they once were. Recent best rates - such as the Anglo Irish 90-day notice account at 6.6 per cent and Scarborough Channel Islands Offshore Flexi 60-day notice account of 6.3 per cent - are similar to those offered on shore by internet account operators and others.

Money held onshore in tax free Individual Savings Accounts (ISAs) have the added advantage of being tax free. “The offshore best buy rates are no longer as competitive as they were, particularly when you compare them to rates available in the UK,” says Rachel Thrussell who is head of savings at the financial information group Moneyfacts.

The European Union Savings Directive does not materially alter the tax position of offshore deposits for UK investors. UK residents were always required to declare offshore interest earnings on their tax return but the directive was brought in because, in practice, there was widespread evasion.

Now after paying the new withholding tax, a UK tax payer simply pays the difference to HM Revenue and Customs. “What you get is a timing benefit now. You don’t have to declare it to the Revenue in some cases until almost a year after you have accrued the interest so you get added interest on the interest,” says Fiona Middlemiss at independent financial advisers Alan Steel Asset Management based in Linlithgow in Scotland.

“The offshore best buy rates are no longer as competitive as they were, particularly when you compare them to rates available in the UK”

Barclays Wealth has operations in a number of offshore jurisdictions including Jersey, Guernsey, the Isle of Man, Dubai, Geneva, Singapore and Monaco. Managing director of Barclays Wealth International, Cameron Fowler says: “There can be tax planning benefits for those with the appropriate domicile for using offshore banking facilities in these centres but there are a number of other reasons why they bank offshore. These jurisdictions are geared up to dealing with people with international needs and many customers can find using offshore centres useful,” he says.

Fowler adds that the reason for using offshore banking facilities has changed with international tax harmonisation rules and stricter regulation of offshore centres. Offshore banking is now much more about international and multi currency banking and the services that are on offer to meet the changing and increasingly global needs of investors. Our clients look for a number of services including international mortgages, credit cards, foreign exchange and investment advice.

He says offshore banking can be important to a number of types of customers, including people living in the UK who are non domiciled and British expatriates abroad.“When we talk to clients we aim to understand their outlook in terms of their risk appetite and investment horizon. . Offshore is one option,” he adds.

Simon Wyatt, head of UK business development at Lloyds TSB Offshore, says
the decision over whether to invest offshore can be a complex choice. “Although expatriates remain a key audience for offshore banks, anyone who spends time overseas, either on holiday or with work or has bought or is thinking of buying a home abroad, should definitely explore offshore banking,” he says. “The benefits of having a bank account that can be denominated in euros or dollars are invaluable and these accounts are becoming increasingly sophisticated.”

Many people who invest offshore opt to invest in bonds which have significant tax advantages. Bonds can be made up of a myriad of investments from cash deposits, equities and unit trusts and can be a low, high or anything in between risk investment. You can, however, roll up the income accrued from within the bond without paying tax.
You are also allowed to withdraw up to five per cent of the value of the bond in any year without paying tax on the amount you take out - although you eventually do pay tax on that money once you cash in the bond.

“Many people invest in offshore bonds because they can defer paying the tax to a future time when they might be earning less money than they are now and will therefore pay less tax,” says Geoff Penrice, independent financial adviser with Bates Investment Services.

“Although expatriates remain a key audience for offshore banks, anyone who spends time overseas, either on holiday or with work or has bought or is thinking of buying a home abroad, should definitely explore offshore banking”

“The other advantage of bonds is that you can assign them to someone else in the future. Many people assign them to their children to help fund them through university. It is very tax efficient because their children are unlikely to be paying much tax.”

You cannot assign other investments such as unit trusts, shares and collective investments in such a way, except to a spouse, without incurring capital gains tax.

Mark Dampier, head of research at stockbrokers Hargreaves Lansdown, says investors should take a hard-headed attitude to onshore investment. “A lot of people become vulnerable to very convincing salesmen pushing their offshore products, particularly people in the expatriate community, and you may find some of them receiving commission at six, seven or eight per cent,” he says.

“I don’t think you should base any investment decision just on the tax advantages.
It is more important to look at the quality of the funds. There are some good fund managers who do both on shore and off shore funds. I would much prefer to back
a fund manager rather than buy a fund simply because it was offshore.”
Middlemiss at Alan Steel Asset Management says the big market for offshore funds is people working abroad. “Someone perhaps who has been working in the oil industry in Dubai where there is little or no tax and has put their money offshore in somewhere like Jersey,” she says.

Offshore banking is also attractive to people who live in the UK but are not domiciled here (i.e. they intend to return to their home country at some point).

Such individuals can in certain circumstances maintain offshore investments and then pay tax on them in their home country when they return. Wyatt at Lloyds TSB Offshore says they need to be correctly advised. “For wealthier individuals, especially non-UK domiciles living in the UK, it is worth seeking out the expertise offered by international private banking specialists,” he says.

Lloyds TSB Offshore has a team of relationship managers that between them speak 42 languages and regularly visit clients in 140 different countries. “They have the expertise to structure bespoke investment products that can be tailored to the individual circumstances of the client. As well as traditional investments in global equities, bonds and gilts we can, for example, design investments based on foreign currencies or commodities. ”

Anyone resident in the UK considering offshore investment, however, should realise that it is not a vehicle for avoiding tax in the UK.

In some cases it does allow you to defer paying tax until a future time when you might pay tax at a lower rate than you do now. This can be an advantage, in particular, if you are planning to retire abroad. As ever, when making major investment decisions it is important to get the right advice.

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