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Offshore Investments for Expats

If you live away from your home country and meet their non-residency requirements, you may be able to benefit from investing your money offshore.

Last updated 6 October 2020 at 11:26

If you live away from your home country and meet their non-residency requirements, you may be able to benefit from investing your money offshore. But what exactly are the benefits to investing offshore?

Offshore Investment Bonds

An offshore investment bond is a tax wrapper that can provide tax benefits for expats and non-residents. While they can be complex investment products and normally only available to sophisticated investors, they are regularly sold by offshore financial advisers as part of a pension wrapper such as a QROPS or a SIPP.

Offshore bonds are normally life insurance products, provided by global insurance companies and made available through financial advisers and/or wealth managers. The offshore bond is so called because it is held in an offshore jurisdiction, such as the Isle of Man, Jersey, and Gibraltar, among others and is subject to the tax rules of that specific jurisdiction, rather than the country of residence of the investor. It is possible for offshore bonds to increase capital free of tax, while the investor may only be subject to income tax when they withdraw funds from the bond itself.

Within an offshore investment bond there are be a a variety of underlying investment options, including stocks, shares, mutual funds as well as other financial products.

Offshore bonds maybe either highly personalised (where the investor can invest in almost any kind of financial product within the bond) or a collective offshore bond (where the underlying investment options are limited to financial products approved by the bond provider).

Offshore bonds have been traditionally misused by unscrupulous offshore advisers using them to hide fees and commissions to make the investments look more lucrative for expats and non-residents, but as long as the investor is provided with full details of the investment and the adviser is operating on a fee only basis, with charges clearly detailed in advance, offshore bonds can offer expats a highly beneficial, tax efficient investment option.

For more information about offshore bonds, including the benefits they offer and guidance on how to spot if you are being ripped off, please read our Offshore Investment Bonds article.

Investing offshore: Choosing a bank accounts

When you save in standard bank accounts in the UK, you are liable to pay tax on your interest payments. Offshore banks are often situated in tax havens and come in a variety of shapes and sizes and it's important to understand the full range of products and services they offer along with levels of service, terms and charges. Below is a brief overview of the different types of the two key types of offshore banks: standard and private.

Standard Offshore Banks

If you are a British Expat, any bank located outside the UK is classed as an offshore bank and will normally be located in a jurisdiction with minimal tax, or a tax haven. Find out which offshore banks are best for expats >

Private Banks

Private banks are typically the preserve of high net wealth individuals with considerable financial assets to their name. Private banks offer a range of services over and above a typical high street bank including wealth and investment management services. Whilst they also offer the same services as high street banks, they also maintain extremely high levels of client confidentiality at all times.

Investing offshore: Confidentiality

Typically when you have significant wealth, everybody wants a piece from governments in the form of tax to corporations and individuals who wish you to spend. It's possible that, as an expat, multiple governments may try to tax you. The laws on confidentiality and privacy are constantly being evolved as people seek new an innovative ways to keep their wealth secret.

Historically there was a stigma attached with offshore investments from ensuring privacy to encourage dubious investment. Today, however any illegal or fraudulent activity will be reported and investigated.

Investing offshore: Offshore Funds

In principle, there is very little difference between offshore and onshore funds where investors' money is pooled enabling investments to be diversified and well managed. The major difference is that an offshore fund is located offshore and intended for use by non-residents of that country.

As with most offshore investments, the major advantages revolve around tax reduction although the other consideration is that typically offshore funds may only be available to non-residents.

The benefits of investing offshore

Tax Efficiency

As already discussed, the primary benefit of investing and saving offshore is the tax benefit. Offshore jurisdictions are typically ultra-low or zero tax areas and the institutions that exist there are specialists in structuring your financial map to drastically reduce your total tax liability, wherever you live.

Diversification of assets and risk management

Diversification of your portfolio is critical to minimising your risk as it means you're not committing to investment opportunities in any one sector or country. Offshore instruments generally give access to all the products in the world, enabling you to make a true choice rather than simply choose from a selection that one particular government thinks is best for you.

International access and currency management

All offshore products typically have an expat or international focal point. They offer a variety of expat-focused services like multi-currency accounts and offshore mortgages. Keeping your finances administered offshore means that an international relocation needn’t mean a financial headache.

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