Home Finance Investment Offshore banking in the United Kingdom
Last update on April 21, 2020

Consider the benefits of offshore banking, which can offer international financial services for expats and companies based in the UK.

Offshore banking is a niche service that offers benefits for expats living abroad and is often utilized by those requiring international financial services. This overview of offshore banking focuses on the United Kingdom and offers guidance to expats and companies in the United Kingdom for understanding and choosing international financial services.

Introduction to offshore banking

Essentially, an offshore bank is a bank located outside the account holder’s country of residence, typically in a low tax jurisdiction. These banks tend to offer financial and legal advantages over domestic banking arrangements. Due to the lack of transparency that is a feature of offshore banking, it is difficult to identify how much capital is banked with these institutions, but estimates have placed it at 26 percent of the world’s wealth.

Reasons for offshore banking

People choose to bank offshore for several reasons. Those living or working abroad may find that holding an international bank account makes it easier for them to manage their finances when they are outside the country.

Accounts are often available in multiple currencies, which can be more convenient for someone making or receiving payments in different currencies. In addition, more complex foreign exchange features may be available e.g. being able to fix currency prices for up to a year in advance. This removes the uncertainty that can be a feature of dealing internationally.

Clients with operations in several countries may find it more convenient and more economical to direct all of their business through one bank, rather than dealing with separate institutions in a range of countries.

Individuals based in countries that are less politically or financially stable than the UK may be worried about the security of funds held in a domestic account. An offshore banking facility offers peace of mind.

Advantages and disadvantages of offshore banking

International banking facilities tend to offer great flexibility so that those who need access to their money or to international financing can do so more quickly and easily than would be possible with domestic arrangements.

Offshore banks may also offer services that are unavailable from domestic banks, such as anonymous bank accounts.

Deposits held abroad tend to be larger as a rule – one of the reasons banks often offer higher rates to deposit holders. Also, interest is generally paid gross, without tax being deducted. This can of benefit to individuals who do not pay tax until filing a tax return.

Offshore banking services usually require greater financial assets than other types of account – it is not unusual for balances of £5,000 (EUR 5,700) or more to be maintained in order to run an account. In addition, facilities are usually more expensive than their domestic equivalents.

While many countries have regulations in place that offer protection to customers in the event of something going wrong, these often do not apply to offshore accounts. This can include an established complaints procedure and, more importantly, a deposit protection scheme. In the UK the Financial Services Authority (FSA) regulates the domestic banking sector, and the deposits of UK deposit holders are protected up to the value of £85,000 (EUR 98,000) under the Financial Services Compensation Scheme (FSCS). However, offshore banking falls outside of its jurisdiction and therefore customers may be unable to seek redress should issues arise.

General perception of offshore banking

International banking has developed a somewhat unsavoury reputation among the general public due to its secrecy. There is a perception – deserved in some cases – that offshore customers hide their income and wealth from tax authorities and that banks facilitate the process. This has included tax evasion as well as money laundering.

The use of tax havens by British residents and citizens to avoid or minimise tax is legal but subject to a range of complex rules and regulations. Additionally, British taxpayers have a duty to report to HM Revenue and Customs (HMRC) details of money held offshore that is liable to tax.

Increasingly governments around the world are tackling tax evasion and money laundering via offshore banking. The UK Government announced in February 2013, that it had concluded negotiations with authorities in the Isle of Man to exchange tax information. This built on previous agreements with the United States and Switzerland.

HSBC has been investigated by HM Revenue and Customs with regard to opening offshore accounts in Jersey for criminals living in the UK. The investigation was sparked by a whistleblower, who provided the tax authority with a list of names, addresses and account balances in November 2012. The account holders included drug dealers, cybercriminals and bankers facing fraud charges.

Famous offshore banks

The major UK banks that have international arms that can offer offshore services include:

In addition, there are other niche private banks offering offshore banking services, such as: