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What Are Offshore Bank Accounts?

When someone mentions offshore banking or investments often people immediately think of shady dealings from James Bond films where the rich billionaire baddy stashes his cash overseas to avoid paying UK tax. Are offshore accounts really like that?

Reality Cheque

In today’s global society there are thousands of people who live and work in many countries around the world during the course of a year. The chances are, they will need a bank that can effectively ‘travel’ with them.

The HSBC, for example, offers current accounts that can be accessed from anywhere in the world. Customers can manage their direct debits and other transfers twenty four hours a day via the internet. They receive a credit and debit card that can be used internationally and they can choose which popular currency to operate the account in: Euros, Dollars or Pounds sterling.

With this account there is a minimum balance of £5,000 and regular sums are expected to be paid in so as to avoid a monthly account charge, but for a globe-trotting high earner this sort of account can be worth its weight in gold.

Living in the UK

For customers who remain living in the UK there are number of off-shore account options. For a long time people have been able to open accounts that are based in Jersey. By so doing they have avoided paying UK tax. These accounts have tended to be the domain of very high earners.

In 2005, however, customers living in the EU became subject to a tax on these accounts. The Channel Islands, although not part of the EU, have agreed to bide by these rules. So from July, 2005 they now assign a retention tax to all interest earned on accounts established for customers living outside the Channel Islands.

It’s unclear as to whether this tax is the same rate as they would receive, if for example the account had been based in the UK. However, given that within the EU there is now the automatic transfer of information about bank accounts between countries, then you can guarantee that no more tax avoidance schemes will be in operation. These days the UK Inland Revenue can very easily compare interest declared by UK citizens with the actual interest earned on bank accounts anywhere within the EU.

We’re Billionaires, Rodney!

UK Banks estimate there are approximately £10 billion stashed in offshore accounts. When the tax-avoidance EU legislation was introduced there was a sudden surge of activity as people moved some £500 million of it back into this country.

People did that or they moved it further a field into accounts held in less accessible places for the tax man such as Dubai or Singapore.

An expensive game

Anybody trying to avoid tax with an offshore account can find themselves in deep trouble with the Inland Revenue. The Government runs a department called the Offshore Fraud Group and if caught the tax-avoider can be charged for twenty years of back-taxes plus a fine equal to 100% of the amount.

Currently, interest earned is taxed at 20% for standard rate tax payers and 40% for higher rate tax payers.

Loopholes for the rich

Despite the EU legislation and free exchange of bank account information between countries, there are still some loopholes than enable the wealthy to stay one step ahead of the tax man. These are mainly to do with certain types of bonds, discretionary trusts and dividends; all of which goes to prove that if you have money, you can make money… Perhaps many people’s impression of offshore bank accounts wasn’t so fanciful after all.

Posted on: [ November 03, 2017 ]       Add to   Digg it   Add to Blinklist   Add to FUrl   StumbleUpon