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Offshore Banking Services Remain Popular With HNWIs
Stephen Little
13 June 2013
Despite offshore financial centres facing increased scrutiny and criticism in recent years, they still remain a firm choice for the UK wealthy population, with one in four high net worth individuals making use of at least one offshore centre, according to a report by Ledbury Research. In its newly published Trend report, Ledbury Research interviewed 500 HNW clients in the UK on how offshore services are used. "One of the most significant findings was that HNW individuals who bank offshore have generally been increasing the amount they hold there over the past two years. Therefore the evidence clearly points to a sector of the wealth management industry that has maintained its place in the marketplace as a real option for HNW individuals," said Stuart Rutherford, research director at Ledbury Research. The survey found that the take-up of offshore services is highest among the under-45 HNW individuals, with penetration at more than 50 per cent. Rutherford highlighted that there were a wide variety of reasons why individuals made use of offshore services and the profile these individuals fell under. "HNW individuals who are heavier users of offshore services are found to be younger, wealthier and higher-earning clients. They use offshore for performance-based reasons, international financial requirements and protectionist reasons," said Rutherford. According to the survey, the top three reasons for using offshore services are tax efficiency, convenience in managing multiple currencies and protection from economic uncertainty. The report also revealed that the most popular offshore centres for UK HNW individuals are the Isle of Man and Jersey, followed by Switzerland. Offshore tax havens have faced increased criticism for allegedly encouraging tax evasion and the concealment of illicit money. Defenders of these jurisdictions say they help avoid the problem of double taxation and put pressure on economies to keep tax rates low. “Whilst tax efficiency is the single most popular reason for using offshore services, nearly half of those that use these services do not mention it as a driver for their usage. This fact needs to be propelled into the public consciousness,” said Rutherford. “Providers of offshore services should individually and collectively seek to promote the many legitimate benefits that offshore has to offer. Offshore is incorrectly and repeatedly associated with tax evasion, and this needs to be concertedly addressed using a wide range of channels," he concluded. Following the global financial crisis, governments in Europe and the US have made it a key priority to increase transparency and crack down on tax evasion and secrecy. The US government has been in a prolonged dispute with Switzerland regarding bank secrecy and the disclosure of information, which now looks set to be resolved. In May, the Swiss government approved legislative moves to allow banks to partly break with long-running secrecy laws to make available information to US authorities. Up until now, the Alpine state has rejected moving towards an automatic exchange of data with other jurisdictions, although it has made a number of cross-border disclosure agreements, such as with the UK. The British prime minister, David Cameron, also recently wrote to UK offshore territories and other self-governing regions, calling on them to sign up to international protocols on information exchange, and improve their transparency. Last month, Austria, Luxembourg and Singapore, along with six other countries, signed up to tax protocols that will enable the international exchange of tax information between participating countries. For more on this story, click here.