Big new kids on the offshore block

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The Independent Online
Walk down any street in Gibraltar, Guernsey, Jersey or the Isle of Man, and you'll be likely to encounter Abbey National or Woolwich, Barclays or NatWest.

In the last 10 years or so most of the leading British banks and building societies have set up offshore branches or subsidiaries. While the existing, long-established offshore institutions offered a range of specialist financial services such as portfolio management, the new kids on the block were offering something far simpler - the savings account.

Many banks and building societies simply moved offshore so that they could offer UK residents tax-free savings. That loophole was subsequently closed by the Revenue but only after building societies and banks had woken up to other, new opportunities afforded by offshore subsidiaries.

There's a range of deposit and notice accounts, plus bonds and cheque accounts. Offshore accounts are UK-friendly, too, offering cash cards accepted in UK machines. So while your money may be earning good interest in St Helier, you'll be able to get at it easily in St Helens.

Interest on offshore accounts is still paid completely free of tax, leaving it up to you to inform the Inland Revenue of your offshore income. The Revenue can't force these offshore subsidiaries to reveal details of interest paid out to investors, so the onus is entirely on investors to pass on details.

You are allowed to keep cash in offshore savings accounts for as long as you like, but as soon as you bring it back into the country you must pay tax on your interest. If you're a non-taxpayer, going offshore can make life very simple. Investors are informed of what interest they've earned and can pass that information on to the Revenue if they pay no tax.

"A lot of people like the idea of having money offshore and are happy with the Channel Islands, for instance, because they are not a million miles away," says Geoff Roberts, business development manager at Lloyds Bank's offshore banking operation.

Like many of the subsidiary operations Lloyds Bank does not actively market its offshore products in the UK. But any British customers can simply call the offshore office to set up an account. From there things are run in much the same way as traditional onshore postal accounts. Cashcards and chequebooks are often provided giving instant access to cash if required, and the post, telephone and fax can come into play according to how you prefer to contact your branch.

"We attract a different kind of customer in Guernsey to those our mainland branches have," says Derek Smith, a director of Yorkshire Guernsey, a subsidiary of Yorkshire Building Society. "As a result our offshore accounts are slightly different. For instance, the minimum balance is pounds 5,000. Because we're dealing with larger amounts, we can offer more competitive rates. The average balance of our customers is more than pounds 50,000 and that balance is often a small part of a detailed portfolio. They want a building society account to provide some liquidity."

Anti-money laundering rules offshore are very strict. The Channel Islands in particular are very jealous of their reputation. This means you will need to prove exactly who you are before you will be able to open an account.

For cash invested overseas, the protection regime is slightly different to the UK. Here your money is protected by the banks' deposit protection scheme or the building societies' compensation scheme. Both pay out up to 90 per cent of the first pounds 20,000 of your savings in the event of a collapse of the institution concerned. The Isle of Man has its own depositor protection scheme run by the local financial supervisors. It's not as generous as the mainland scheme, paying just 75 per cent of the first pounds 20,000 of your savings.

But if you have funds in the Channel Islands they won't be covered by any protection scheme. But if the worse did happen, offshore branches and subsidiaries would be supported by their parent organisations - which, in most cases, will guarantee the full amount of your savings.

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