Offshore investments, work the same as normal investments back home. For, example the stocks and funds, I invest in are the same as I would have in a platform back in the U.K (or the U.S, Aus, etc), but what differs is the tax I pay.
I can still use most of the platforms you can in the UK but you get charged a platform fee and an annual management fee in order to do this, however, when I earn any money on the account in the UK I will be subject to tax because expats can’t access ISA’s.
Now, this might not make to much of a difference to you depending on where you are based are from. But the tax level is done from the investments where they are domiciled so for example, in the U.K. Tax on investments in most western countries is subject to capital gains tax and dividend tax.
An Example
If I sell my shares in the U.K. worth more than 12,500 GBP this will be taxed at the tax band rate (20–40%) and if you have income from dividends that go over 2000 GBP you get taxed on that at the same rate above.
This could add up if had a significant amount in your investment pots, as an expat you generally earn more and are taxed less which is likely to give you a higher disposable income!
Also, for complicated matters of inheritance, you can use offshore locations to mitigate inheritance tax, and tax on your pension(s, through offshore trusts. Many expats will have large inheritance issues and multiple pensions, by utilising offshore locations you can reduce the amount of tax that you owe and you can list a beneficiary on your pensions. If you leave the pension with your company, then it is likely to go back into the ether once you die, this way you can look after those most important.
This is useful to U.K personal living abroad anywhere in the world with limits over the nill band rate of 325,000GBP in their inheritance.
How Offshore works?
The way offshore works is, you are taxed where the investments are domiciled, usually in the low tax area and these can be Isle of Man and Malta. Many perceive offshore as it being stashed away in a Swiss account with no trace and you are a tax fraud. This isn’t the case, you can legally bank offshore, it is not against the rules, they just don’t advertise the fact so that you continue to pay your tax.
Also, if we take the banking offshore (I will use the U.K again) FCA will only protect 85,000 GBP for a single person and 170,000 GBP for a couple in a banking collapse so if you have significantly more, it is at default risk. USA, Aus, Canada and most western countries have similar provisions in place. When Northern Rock collapsed and you had £200,000 in there, would you of been happy that automatically £30k would of been lost and the other £170,000 is in a state of uncertainty.
Offshore Banks
Offshore the banks are protected normally to the full amount by custodian or country regulations, depending on where you are. They mostly have better banking, look at the world banking report the U.S is around 40th.
Also, so the place may have different reporting acts, Panama, for example where data is private. Most these days are subject to a common banking act, where they have to report information.
Note this doesn’t apply to U.S personal due to FTCA tax and it is hard for U.S personal to go offshore legally due to the tax, you will need to get a second passport, however, this can be done by investment and could potentially save you a lot on tax.
How do the investments work?
Well, the same as it would back home you sign up for a platform through a broker. You have the usually process checking tax, I.D, etc, most are very complaint as don’t want money underlying when it is all set up you are able to invest. It the same process as anywhere else in the world. Being or banking offshore doesn’t restrict your investments, in fact, it may even open up your investments because in the UK investments are highly regulated, this isn’t a bad thing, but it also regulates what they can invest in and this means you might not get as good returns as you can offshore.
Who can invest offshore
Well, most people, you don’t have to be an expat necessarily, you can be living in your home country and still invest offshore, you just need a broker who knows the regulations and will understand your tax situation. If you are offshore already then you can access it, there are many brokers who can help you set up the right investment for you.
The only people that it is difficult for are U.S citizens, but not impossible, as we have bonds made for tax purposes for U.S personnel.
