Offshore investments work the same as normal investments back in your home country, however, it is just based in a different location. 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.
This is a big difference, the tax.
I can still use most of the platforms that you can in the UK, however, 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 too much of a difference to you depending on where you are based. 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.
You could be in a low tax residence but be taxed at a higher rate because that’s where your investments are.
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 you 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 and usually means more in the bank depending on how much you spend.
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.
When 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 and leave it to them!
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 Investment 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, Australia, 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 have 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.
Secondly, 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. This blog will help US citizens: Investing as a US Expat: Is It Getting More Difficult?
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 usual process checking tax, I.D, etc, most are very compliant as don’t want any underlying issues and when it is all set up you are able to invest.
It is the same process as anywhere else in the world. Being and/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.
The low fee platform for an offshore Lump Sum or U.K pension
I have used the Isle of Man as an offshore go-to for some time for lump sums and pensions. I have even used Cayman, Malta, Singapore and Hong Kong companies but have found them to be expensive and they lack flexibility In the majority of cases not be beneficial for the client.
Very recently I have used “Custodian” for an offshore bond platform and will give you a review of my personal experience and own thoughts with the facts that are highlighted.
Why do I consider this?
Offshore platforms can be good value to the client, Arden by RL360 are reasonably priced with a good enough fund selection based in the Isle of Man with investor flexibility. Other good products are available as well in the offshore bond market.
But these are some of the few, that I am personally happy within the offshore lump sum investments section.
Offshore lump sum products that if used in the right manner can be highly effective for example if you are looking to set it within a trust and go over the tax band (such as IHT nill band rate in the U.K.) you can save and protect wealth legally for expats so can be well worth it. However, most offshore bonds have a 1.5%-3% charge, limited flexibility, and a rather limited fund section.
Also, if you are looking to move your SIPPs, U.K Pension, your AusSuper, or rolling your 401k or IRA (this one really would be an extreme example due to the tax) offshore there would be little point if you are not breaching any tax limits to look offshore.
This is because platforms range from 0.25%-0.5% and active management is 1.2% so why would you pay 2.5% at the very least offshore (I have seen people paying 5-6% management and platform fees offshore) when you can get it for a fraction of the price back home.
The U.K., U.S, Australia, Canada all offer online brokerages and even financial advice for a lot less than this. So really is it worth using if you are not getting any tax reductions as an expat.
*Note that if you buy funds from the source directly they can have a high entrance fee and a fee of 1% annually.
What Do I Look For?
When I look for a platform to be used I want it to be a few things, for the “genric” investor.
- Stable
- A good support team
- Reputable
- Good Investment Options
- Good value for the client
- Flexibility for the client to withdraw without penalties if needed
- Something that gives it edge offering something different
What Platforms do I have?
In this table, I will do a brief guide on the charges of some of the funds and the platforms this will vary significantly on the number of coms the advisor takes the term, and fund charges. Also, note that the advisors can also add a management fee for this.
| Platform Name | Charges P.A (these depend: term, amount and structure | Hidden Charges |
| Friends Providence International reserve bond | 1.2-2% | Mirror Fund, initial advisor coms 5-7% admin charge. |
| Friends Providence International Summit bonds | 1.5%-2.5% | Dealing charges admin charges and initial fees advisor fee 5-7%. |
| Friends Providence International Zenith | 1.3%2.2% | Dealing mirror fund charges 2% admin fees & advisor fee 5-7%. |
| Generali Vision professional portfolio bond | 1.2%-2% | Dealing charges 2% admin fees & advisor fee 5-7.5%. |
| Hansard International Capital Bond | 1.6%-2.1% | Dealing charges 2% admin fees advisor fee 5-7.5% |
| Investor Trust Evolution plan | 1.2%-1.9% | 5-7% fees, admin charges. |
| Investment trust platinum fund | 1%-1.5% | 5-7% advisor fees admin charges. |
| OMI collective Investment bond | 1.2%-2.4% | Dealing mirror fund charges 2% admin fees & advisor fee 5-7% |
| OMI executive Investment bond | 1.7%-2.4% | Dealing mirror fund charges 2% admin fees & advisor fee 5-7 |
| Prudentantal International Bond | 1.5%-1.9% | Dealing mirror fund charges 2% admin fees & advisor fee 5-7 |
| Royal London Pimms | 1.6%-1.8% | Dealing mirror fund charges 2% admin fees & advisor fee 5-7 |
| Royal London Orical | 1.8%-2.1% | Dealing mirror fund charges 2% admin fees & advisor fee 5-7 |
Here are a few of my top advised ones and the fees, please note this is not an in-depth review, please read more on my blogs on U.K SIPPs international platforms with ratings or get in touch to see which is the best step for you.
If you are looking for DIY platforms, I have done a whole number of blogs about the different DIY options in the market and will link below as all these are advisor lead platforms.
| Platform Name | Fees | Dealing charges | Currency Options | Funds |
| Capital Platform | 0.4% | 0.2% | Yes | 2500+ |
| Ardan International | 0.4% | 45 USD | Yes | 2000+ |
Links to articles
These are some links to articles that might help you when looking to invest offshore:
