Your five-minute guide to … Offshore accounts

The Panama papers became famous and started a whole storm of disputes about offshores. Still, it’s considered useful to have an account outside the country you live in, and the matter isn’t only in hiding your money from taxes.

Offshore account will serve you well if you plan to move, work, and live abroad. According to Mark Giddens, tax partner at the accountant UHY Hacker Young, having an offshore account is legal. It’s useful to have one when you need to pay bills for an overseas house or other property, or help your family that lives there.

So what is actually an offshore account?
As you can see in its name, it’s an account opened in a bank within a country different from the one you live in. Most of the high-street banks like Barclays and HSBC, as well as some private organizations, allow their clients to open accounts within the banks of the Channel Islands, Gibraltar and Cyprus.The accounts hold different currencies, so you do not have to worry about fees on overseas payments and transfers. Lloyds’ International current account, for example, which is based in the Isle of Man and Gibraltar, offers free international transfers in dollars, euros and sterling, which means you avoid foreign currency charges. There is a monthly fee of 7.50, though.

How can an offshore account help in excellent tax planning?

An offshore account can be a key component of effective tax planning, especially when considering jurisdictions with favorable tax policies. The Non-Domiciled (Non-Dom) status in Cyprus can serve as a good illustration of how offshore accounts can enhance tax efficiency. Wondering how this works?

By obtaining a Non Dom Cyprus status, individuals not domiciled in the country but holding tax residency can benefit from a tax regime that focuses on taxing only Cyprus-sourced income and specific categories of foreign income brought into the country.

For instance, dividends, interest, and rental income earned abroad may be subject to advantageous tax treatment, often exempt from certain local taxes. Additionally, Non-Dom individuals in Cyprus may enjoy exemptions from capital gains tax on the sale of securities and relief from estate duty.

This strategic use of offshore accounts, therefore, allows individuals to optimize their tax liabilities within legal frameworks. It is essential, however, to seek professional advice to ensure compliance with local regulations and stay abreast of any changes in tax laws, ensuring a secure and effective approach to offshore tax planning.

How do I open an account?
Banks commonly impose specific financial criteria for individuals seeking offshore accounts, using benchmarks such as minimum savings, investments, or income thresholds. For instance, the HSBC Expat account mandates a minimum “relationship balance” of £60,000, a prerequisite that signifies a financial commitment from the account holder. While the exact details of HSBC’s offshore services remain undisclosed, the bank emphasizes the comprehensive vetting of all clients, underscoring the stringent measures in place to ensure the legitimacy and financial stability of account holders.

Similarly, Lloyds, another major financial institution, sets specific requirements for offshore account eligibility. Prospective account holders are obliged to demonstrate a yearly income of at least £50,000 or maintain a minimum savings or investment amount of £25,000 with the bank. These criteria not only serve as financial gatekeepers but also indicate the bank’s commitment to catering to clients with a certain level of financial capacity. By implementing such prerequisites, banks aim to manage risk, ensure the financial health of their offshore clientele, and maintain the integrity of their services in the realm of international banking.