Banking

If you are resident and domiciled in the UK, you must declare to HMRC the income from any offshore bank accounts you have.

If you are UK resident and domiciled, you have to include income from offshore accounts on your self-assessment return and pay tax on the interest and other income and gains earned every year. There is a marginal cash flow benefit in holding offshore bank accounts, however, particularly where you have large cash balances. This is because interest on offshore accounts is paid gross (i.e. before tax), compared to net for onshore accounts.

Another attraction of offshore banking for international investors is the greater availability of different currency accounts and the ease with which money can be transferred between them and thus into dollars, euros and other denominations. Such transfers no longer create taxable capital gains when measured in sterling terms.

Non-domiciled individuals have the greatest advantage in using offshore bank accounts. As long as you do not remit interest from your offshore accounts to the UK then you do not pay UK tax on the interest earned.

Offshore bank accounts are becoming increasingly subject to disclosure obligations. In March 2014 the UK and 43 other jurisdictions committed to adopting the Common Reporting Standards regime (CRS) as developed by the Organisation for Economic Cooperation and Development (OECD). CRS implements a standardised system of automatic exchange of information designed to combat tax evasion and ensure tax compliance.

CRS requires jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.

Within the European Union (EU), the Revised Directive on Administrative Cooperation 2014/107/EU (DAC) has replaced the old EU Savings Tax Directive regime with a wider range of obligations. The DAC includes a requirement for Member States to require their financial institutions to implement due diligence, reporting and exchange of information arrangements between Member States, which are broadly consistent with the CRS. As a result, no further inter-governmental agreements to confirm a legal basis for information exchange are required within the EU.

This follows in the wake of the US Foreign Account Tax Compliance Act (FATCA), which was implemented following an agreement between the UK and the USA in 2012. By complying with FATCA, UK financial institutions avoid 30 percent withholding tax on US source income receipts and are not required to withhold on payments made to recalcitrant account holders (or even to close their accounts altogether). HMRC provides the information received to the US under existing double taxation and tax information exchange agreements.

CRS, DAC and FATCA are now all enforced in the UK under a single piece of legislation known as the International Tax Compliance Regulations 2015 which came into force on 15 April 2015.