As British banks close thousands of expat accounts and leave them hunting for somewhere to keep and manage their money, it’s time to look at banking options for Brits abroad.
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Banks are warning expat customers that their accounts are due to close as Britain finally cuts ties with the European Union when the withdrawal transition agreement expired on December 31, 2020.
Expats rely on the banks for receiving pension payments and paying bills.
The banks want to close the accounts because they would have to apply for licences to operate in every EU country after Brexit, and the cost of regulation balanced by the profits from expats using their services don’t add up for many.
Many UK based banks offer offshore accounts – but are these suitable and safe to use for expats?
What Are Offshore Current Accounts?
Banks offer offshore current accounts to British expats who typically want an account in a currency other than the pound.
Popular choices are US dollars and Euros.
Offshore current accounts tend to work the same as a standard UK current account, but banks may levy charges or demand higher cash on deposit. The banks may also set higher income limits for customers that could exclude many retired expats.
Accounts are accessed by debit card or online apps just the same as onshore accounts.
The big difference is how your money is protected.
In the UK, deposits are safeguarded by the Financial Services Compensation Scheme (FSCS). However, offshore accounts do not fall under the FSCS umbrella because they are based in the Channel Islands, Gibraltar or the Isle of Man, which have their financial protection, which is often limited compared to the UK FSCS scheme.
Offshore Banking Options For Expats
Expats have several alternatives if their UK bank accounts are closed.
You can stay with your UK bank – if they will let you. However, money laundering rules mean the bank won’t accept you as a customer if you have an overseas address and passing off the address of friends or family won’t work if you are not on the voter’s roll.
Probably the most useful option is opening an account in the country where you live. This helps if your income is generated in the same country, but timing problems and exchange costs arise when you want to switch pounds to a local currency.
You can pay your state pension into a foreign bank, but many private pension providers only pay into Sterling accounts.
The next choice is an offshore current account.
Offshore Banking And Tax
Banking offshore is not against the law and is often desirable for expats.
Tax avoidance by failing to declare cash and earnings in an offshore account is breaking the law, but if expats follow disclosure rules, they are safe from criminal investigations.
Don’t forget under the Common Reporting Standard (CRS) and US Foreign Account Tax Compliance Act (FATCA) rules; the banks already tell the tax authority where an expat lives about the money and other assets they may hold in their accounts.
How Safe Is Money In An Offshore Account?
The UK, Gibraltar, Channel Islands and Isle of Man, with most European countries, are part of a deposit protection scheme.
The important point is not who owns the bank but who holds the licence they trade under.
For UK banks, the consumer magazine Which? has a handy online tool for checking which banks and building societies operate under the same licence. For offshore or foreign banks, tracking down the information is likely to be harder.
The terms and levels of cover vary between schemes, but this is the current state of play:
UK – The FSCS offers 100% protection for cash on deposit. The limits are up to £85,000 for a sole account and £170,000 for a joint account.
The guarantee covers all banks under the same licence, so if you have £50,000 with the Bank of Scotland and £50,000 with the Halifax as a sole account with each, £15,000 is not protected because the Bank of Scotland is the licence holder for both banks.
The exception is a temporary limit busting balance from an event like a house sale or inheritance. In these cases, a temporary £1 million balance is protected until February 1, 2021, when the stop-gap safeguard reduces to six months.
European Economic Area (EEA) – Britain left the EEA and EU on December 31, 2020. From then, the Deposit Guarantee Schemes Directive offers €100,000 cover for each individual customer with each bank.
Jersey – The Jersey Depositor’s Protection Scheme protects up to £50,000 per bank or building society licence.
Guernsey – The Guernsey Banking Deposit Compensation Scheme also covers £50,00per person per bank or building society licence
Isle of Man – The Isle of Man Depositors Compensation Scheme follows those of Jersey and Guernsey, safeguarding £50,000 a customer for each bank or building society licence.
Gibraltar – The Gibraltar Deposit Guarantee Scheme covers €100,000 per customer per banking licence
Offshore Banking FAQ’s
Offshore banking rules are in a bit of a mess for expats who may find that their UK bank accounts, debit and credit cards stop working from January 1, 2021.
The issue is particularly relevant for retired expats reliant on pension payments for day-to-day spending.
Sorting out banking depends on the country where you live, the money you receive and how savings are protected.
Here are some answers to the most asked questions about offshore banking from expats.
Your credit history is locked with the country where you live and is not international. If you have recently moved abroad – say within a year or so – you may not have a credit record in the place where you live, especially if you still have a UK bank account.
You can take steps to start a credit file by signing up for a mobile phone or landline, utilities and other services in your new home.
Online financial monitor Moneyfacts has a list of current offshore banking deals offered by banks that are subsidiaries of well-known British onshore banks.
Yes. Sometimes they have different names, like instant access or deposit accounts.
Offshore and foreign banks will consider mortgages for expats, providing they meet the application rules for the country where they live. Banks in the UK won’t mortgage property overseas because of the legal problems involved in repossession if the borrower fails to repay the loan.
Yes. You must declare the interest in the country where you are resident for tax.
No. The process is carried out remotely or by post.
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