What are offshore investments?
Offshore investing is when you invest in investment vehicles situated in low tax areas outside of the United Kingdom.
Successive governments have made it less attractive to put money offshore to avoid tax. Nevertheless, for many there are advantages to investing offshore particularly the tax deferral benefits. In financial planning terms holding cash offshore in a fund or deposit account can be useful for example to determine when the money is brought back to the UK to add to the investor’s retirement fund or to gift to children or grandchildren.
Who can invest offshore?
Any adult can invest offshore.
In order to work out what your tax position will be it is important for offshore investors to know two things. What your domicile is and whether you are a UK resident. An individual acquires a domicile of origin, which is usually the same as that of his or her father. If you were born in the UK and it is your permanent and natural home it is generally the case that your domicile is the UK. Non-domiciliaries can protect their income and gains on overseas assets from UK tax, including inheritance tax, as long as they do not bring them into this country. If you are married to a non-domicile, there are tax advantages to putting non-UK assets in the name of your spouse.
If you live in the UK for more than 6 months of each tax year you will generally be treated for tax purposes as a UK resident.
An Independent Financial Adviser can help you work out the answers to these questions.
What are the tax benefits of offshore investments?
For a UK domiciled ordinarily resident, there are tax deferral benefits of investing offshore. If you put money in an ordinary offshore bank account, you have to pay tax on interest every year through your tax return. But some offshore banks and building societies offer deferral accounts in which tax is not paid on interest until the money is brought back to the UK.
Tax deferral is also offered by many offshore funds. There are many different types of investment vehicles available offshore such as offshore bonds that allow an investor to defer tax within the policy until benefits are taken, rather than suffering a basic rate tax liability within the underlying funds.
Investments such as offshore redemption policies, personalised policies, offshore unit trusts and OEICs, SICAVs can all make the choice of which investment type complex. You may also wish to have access to investments or savings that are denominated in another currency.
Many banks, insurance companies and asset managers in offshore centres are subsidiaries of major UK, US and European institutions. An IFA can help you choose an offshore fund and provider.
If you decide to move abroad, you may not pay any tax at all when you cash-in an offshore investment although this depends on the rules of your new country.
What are the benefits of offshore investments other than tax?
By going offshore, you can choose from thousands of funds that can improve the diversification of your portfolio. You can also get access to expert fund managers that are not available in the UK.
What is the position for expatriates?
Those who work overseas or have moved abroad to enjoy a different lifestyle often want to pay as little tax as is legally possible.
Regarding savings and taxation, what applies to you in your specific circumstances is generally determined by the UK tax regulations and whatever tax treaties exist between the UK and your host country. The UK has negotiated treaties with most countries so that UK expats in those countries are not taxed twice. It makes sense to have an Independent Financial Adviser at home and abroad who understands the host country’s rules and regulations. Basically if a non-domiciled UK resident is employed by a non-UK resident employer and performs all of their duties outside of the UK, the income arising is only subject to UK tax if it is received or remitted to the UK.
Are offshore centres regulated?
There are more than 30 offshore centres, ranging from the Channel Islands through the British Virgin Islands to the Cook Islands. Their level of regulation, supervision and compensation schemes vary so it is important to get advice before investing in an offshore jurisdiction.
Offshore financial centres have tightened their regulations in recent years. Indeed, in the Isle of Man and Channel Islands, providers of trusts and companies are now being regulated, which has yet to happen in the UK. Hedge funds and experienced investor funds face relatively light regulation.
Investor compensation schemes tend not to be as developed as in the UK so you should check with each jurisdiction. The most popular locations for investing offshore to date by UK investors have been the Isle of Man, Jersey, Guernsey, Luxembourg and Dublin.
Do I need advice?
It is important to ensure you are investing in an offshore investment that is appropriate for the level of risk you wish to take. If you are an expatriate you should find out if you are aware of all the investment opportunities available to you and that you are minimising your tax liability. Talk to a financial adviser before investing money offshore as it is a complex area.
For details of local IFAs who can advise you on a wide range of financial services, call IFA Promotion free phone on 0800 085 3250 or click online at www.unbiased.co.uk.
This factsheet has been approved by a person authorised and regulated by the Financial Services Authority. The value of your investments can go down as well as up. You may not get back your original investment. Past performance is no guarantee of future performance. Currency movement can affect the value of an offshore investment.
