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Summary

Offshore funds have been in existence since the 1960s, and so named because they were established originally in the island tax havens of the Caribbean and the English Channel. The term 'offshore' has since come to mean any jurisdiction, wherever geographically located, which is advantageously different from one's own domestic financial environment.

It has to be said that some established offshore territories do not inspire confidence, and should be avoided. The British Virgin Islands is known to be a home to high-risk hedge funds, and asset protection trusts of dubious legal standing. Places like Nauru, being virtually unregulated, are magnets for the proceeds of organised crime. However, the ones that are politically stable, and have strong regulatory regimes to protect investors, are readily identifiable. Dublin, Luxembourg, Jersey, Guernsey, the Isle of Man and Bermuda all have these attributes, as well as compelling business reasons to foster reputations as high quality financial centres.

Offshore fund managers are restricted in what they are permitted to market directly to UK investors. However, the Financial Services and Markets Act 2000 makes provision for certain territories and funds to receive approval from the UK authorities to offer their products for direct subscription by UK residents.

So, if it is perfectly legal for an investor to lodge savings and assets offshore, what benefits are there that make it worthwhile to do so?

The advantages take a number of forms: a tax-free, or 'tax-lite' regime which reduces the costs on the fund - making increased performance achievable, and a less restrictive regulatory environment. Assets can be held in confidence, and the timing of tax payments, and mitigation of the rate at which they're levied, can be managed by investing offshore.

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