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Offshore accounts are those registered outside the United Kingdom, in places like Jersey or the Isle of Man. These accounts are governed by different rules than those that cover UK accounts, which can offer both benefits and drawbacks.
Anyone can open offshore accounts, though the minimum balance is usually £5,000 to £10,000. Banks offer easy access account, notice and no-notice accounts, fixed-rate accounts, monthly-interest accounts, among others. Depending on which account one chooses, customers may be able to get cash cards and bonuses, though there are also varying transaction fees, limited withdrawals, and so on.
The main benefit to UK residents holding offshore accounts is the difference in tax rules. Offshore accounts pay interest in gross, without tax being deducted. UK residents must still declare this income on their returns, but the money earns interest on the gross, which can lead to a higher final payout, especially if dealing in large sums of money.
Customers can often run offshore accounts using dual currencies – euros and sterling, for instance. They can open an account that gives them a euro chequebook and debit card, but that still allows them to pay UK bills in sterling. This is helpful for those who are no longer residents of the UK, but who cannot yet open a local bank account.
Offshore accounts are not covered by the Financial Services Compensation Scheme, so if a customer's bank folds, they not afforded the same protections as those in the UK. Many account holders with Kaupthing Singer & Friedlander Isle of Man discovered this the hard way when the bank went into administration in 2008. The Government has also been getting tougher about going after UK residents who hold offshore accounts and don't report interest income.
Those moving abroad will want to open an account in the country to which they're relocating. Most High Street banks in the UK are part of international networks of banks, or are even owned by foreign banks, so customers of High Street banks should investigate whether their destination has related banks. Customers can also open an account with an online bank. These give access to one's money from anywhere in the world, though without physical banks, it can take a few business days to transfer money or clear a cheque.
While it is not illegal to hold offshore accounts, it is illegal to fail to report the interest income earned. Customers should make sure to know the rules prior to opening any new accounts.