Even the Americans seem to have caught the offshore bug – although there is no taxation advantage available to them from going offshore, they have realised that potentially the only way for them to achieve decent yields is to diversify across assets, currencies and different countries’ offerings because their own interest rates are so low.
So, is saving offshore the only way to achieve decent yields nowadays? It does seem as though expats and even those resident in the UK who want to do better than the 3 or 4 % that you can get with an ISA need to look offshore.
For expats of course, ‘offshore’ brings with it additional benefits too, such as the deferment of taxation through the gross realisation of gains…which can have a positive plus point in terms of final yields potentially. And for those expats who are tax resident in no or low tax countries, offshore makes even greater sense! But is it all about the interest rates?
Who Can Save Offshore?
We’re often contacted by Britons who are resident overseas and who want to know whether they can go offshore. There is confusion about who can potentially benefit, whether expats can access offshore offerings, and even the age-old issue of whether offshore is even legal.
First things first let’s clarify the fact that ‘offshore’ is legal – and in terms of the financial services industry it’s merely a term used to define a nation other than the one in which the person (investor, account holder for example) is resident. It usually pertains to a tax attractive jurisdiction, but that’s not always the case.
Next up, anyone can theoretically save, invest, bank or hold assets offshore – especially those who are European citizens and who are party to the EU rules relating to the freedom of movement of capital. However, not everyone should go offshore and not everyone can necessarily benefit from going offshore.
By going offshore you can potentially save and invest in different currencies, access different nations’ underlyings, markets and offerings, gain access to different finance houses and fund managers and achieve great diversification. There are even different savings and investment products available – from QROPS to portfolio bonds for example.
On the face of it therefore, offshore is all about diversifying and in so doing, potentially improving gains and returns. However, as with all elements of the financial services industry there are regulations you need to know about as well as risks, and therefore it is essential that anyone thinking about going offshore takes the time to explore the landscape with the help of an independent, qualified and reputable financial adviser.
The content of this article does not constitute advice – it is produced and published merely for information purposes only.
Anyone thinking about going offshore also needs to take the time to understand their own responsibilities relating to the reporting of their financial activities to relevant tax authorities for example – and there are those who need to know that their personal information and that relating to their offshore savings activities can be passed to their home tax authority automatically if they reside within the EU.
How Can You Gain by Going Offshore?
In terms of whether you can access better interest rates offshore, that’s not always the case. You may be able to tap into savings products in Turkey or Australia where interest rates may be higher for example – but then you may face currency conversion costs and if the currency moves too far against you, any interest rate gains may be lost.
Additionally, if you’re only chasing interest rates and you do so by investing in a nation where the currency is perhaps less stable or where underlying economic or governmental issues could undermine the currency, you risk your invested capital let alone any potential returns.
If on the other hand you accept that ‘offshore’ means anywhere but home, you can hopefully immediately see the breadth of the diversification potential that you have. So, offshore becomes less about ‘just’ chasing interest rates and more about looking holistically at your entire financial position and the best methods available to improve your financial lot.
Because there is so much choice available, and because rules, regulations and risk differ greatly, it really is critically important that you seek qualified, reputable, experienced, regulated and professional independent financial advice as stated above.
There are potential gains and advantages to be explored, particularly by expatriates, but because so much is dependent on an individual’s own personal circumstances, requirements, risk profile etc., anyone contemplating going offshore has to take the time to explore all aspects of the decision with professional guidance.