Basic Offshore Financial Tips for Expats

Some simple and effective offshore financial tips for people who are moving abroad or who have recently expatriated

If you’ve just moved abroad or are planning a relocation overseas, one of the things on your mind is likely to relate to your financial situation.  Can you save tax now that you don’t live in the UK, are there advantages to you going offshore, what about having an offshore bank account?

There’s a lot of information pretty much thrown at expats about how they must utilise their financial advantage now that they are non-UK resident, but what about some basic offshore financial tips for expats to be going on with?  Because it can take time to get settled and get in the right frame of mind for a full financial overhaul, but there are certain things you can do immediately to sort your finances out tax efficiently and simply.

The first thing to think about is your bank account.  Should you keep your bank account in the UK open and use that, do you need an account in your new nation of residence, and what about an offshore bank account?  Could one of those be advantageous to you?

Now before we go any further it’s important to mention that each individual’s personal and financial situation is unique and therefore any information given in this article does not constitute advice and may not be applicable to you, therefore you should seek personalised and professional financial and/or taxation advice.

Having said that...it usually makes more sense for anyone going to live abroad to keep a bank account open in the UK.  If you inform your bank of your change of residency status, the vast majority will allow you to leave your account as it is rather than having to change it for an international account for example. 

The main reasons for keeping an account open in the UK include maintaining some form of credit history in the UK so that if ever your repatriate, i.e., move back to live in the UK, you won’t find it so difficult to get a mortgage, prove financial liquidity for a rental contract for example or just prove your identity.  Also, if you retain a property in the UK you can manage your bills and payments via your UK bank account and if you have any other financial obligations or interests in the UK or priced in pounds sterling these can be managed through your British bank account

Most people also choose to open an offshore bank account and/or an account in their new country of residence too.  An offshore bank account can be good for those who live quite an international lifestyle as they can allow for flexible banking, and a local account is essential for payment of day to day household bills for example

One of the things many people mistakenly believe is that an offshore bank account will somehow immediately shield the money therein from tax.  It’s not their fault that they believe that, a lot of banks can pretty much lead you to believe that until you read their small print!  The thing to remember is that the tax efficiency of an offshore bank account largely depends on the person with the account NOT the jurisdiction in which the account is located. 

For example, if you’re a British resident living in France with an offshore bank account in a tax advantageous location such as Luxembourg for example, you may not be allowed to benefit from the tax advantages of the jurisdiction because of your tax status in France.  The tax efficiency of any offshore account depends on your tax status which is largely determined by the country in which you live.  Those who expatriate who want to benefit from the tax efficiency of offshore savings and investments or bank accounts should choose to live in a country where they are either only taxed on what they earn in and remit to that nation, or where the nation in which they live taxes at a very low rate.

So, if you can’t save loads of tax with an offshore bank account, who can benefit from one?  Well, it can make sense for people who work in multiple locations or who have an international lifestyle to also take an international view of their banking and finances, and for such people an offshore bank account may make sense.  But the first question they have to answer is the one pertaining to residence – i.e., where do they spend the majority of their time and where, therefore, are they deemed tax resident.  This will determine how they pay tax and on what and to whom!  Taxation aside, it can be advantageous for such people to have an international or offshore bank account simply for ease of use.  Such accounts are often a lot more flexible in terms of access, they may allow for fee free international transactions too. 

When it comes to the question of saving and investing offshore for expats, pre-retirement age expatriates living and working abroad sometimes find that they are in a stronger financial situation as a result of their status.  Perhaps they are earning more, enjoying a lower cost of living, paying less tax and generally have a greater disposable income.  Such fortunate individuals sometimes find high interest bearing long term savings and investment accounts into which they can pay intensively over the short term make sense.  They can pay a lot in up front while they are living abroad and enjoy long term compound growth on money they don’t need instant access to.

When it comes to the question of long term savings specifically for retirement for expats, such an individual needs to look at whether there are any tax incentives for them to pay into a traditional pension plan in the country where they are deemed resident, or whether the likes of an offshore pension or QROPS (Qualifying Recognised Overseas Pensions Scheme) are more beneficial.

Not all expats are eligible and it doesn’t make sense for all expats to transfer traditional pensions into these schemes, but for those who are eligible and for whom QROPS make sense, the schemes allow for massive flexibility.  See our article about QROPS for more information.

In conclusion, an expatriate needn’t make their financial situation any more complicated simply because they have moved abroad!  For those who want to learn more about the tax saving advantages that might be available to them offshore, there are specific advisors who can help, for others who want to keep things simple, just retain a UK bank account if you can, and speak to an accountant or financial adviser about any ways you might be able to reduce your tax bill now that you’re living abroad.