Some six million people plan to retire abroad, according to recent MGM advantage research, with 3.2 million of these wanting to move somewhere else in Europe.
Although the number making their dream come true is likely to be far smaller, the new found flexibility in how you can withdraw your pension makes retirement abroad a more realistic proposition for some.
However, moving your life to a new country is a complex business and it is important to make sure that everything is in order before you commit to it. One of the best ways of doing this is to talk to a financial planner – an expert in helping people to make the most of their finances and plan for the future.
The importance of Financial Planning
Jo Jackson, Head of Financial Planning at Brewin Dolphin’s Newcastle office explains:“It is essential to speak to a financial planner if you are thinking of retiring abroad. One of the issues that people emphasise is the need to use the right lawyer and estate agent when buying a property abroad; to help ensure it can’t be taken away from you. Just as important is to make sure that the income and capital you will rely upon will be stable and secure. You do not want to have a few years of living the dream only to find that you have to come back – it is about ensuring that you have everything you need to sustain the lifestyle.”
She adds that talking to a financial planner can act as a ‘sanity check’ for your plans. They will make it clear that getting advice in the UK is just the beginning and that you will need to speak to professionals in the country you are planning to live in. A financial planner will help you with the questions that you need to ask but – to get you started – here are some of the things you should consider.
Pension: Pay less tax
Provided you choose a country which has a double taxation treaty with the UK, and you comply with strict residence criteria, you could pay less tax on your pension than you would in the UK. If you move to Portugal, for example, you could pay no tax for the first ten years, while France charges just 7.5% on lump sums. Best to take your 25% tax-free lump sum in the UK though, as it is taxable in both France and Spain.
Public sector pensions
Unfortunately, public sector pensions are almost always taxed in the UK. But the UK has a special arrangement with Cyprus, enabling UK public sector pensions to be taxed locally. Cyprus has a 5% tax rate for regular annual pension income and lump sums can be tax free.
State pension increases
Once you have qualified for the state pension, you can claim it, no matter where you live. But you will not get any increases that pensioners in the UK receive unless you move to a country in the European Economic Area, Switzerland or a country which has a social security agreement with the UK. This excludes Australia, New Zealand and Canada.
Capital Gains Tax (CGT)
Different countries have very different rules concerning CGT on property, and it is important to check how you could be affected in the country of your choice. In Spain you are exempt from CGT on your home if you are aged 65 or over and have lived in your family home for three years or more, while in Germany, you are exempt so long as you have lived in it for ten years.
Estate Planning and Inheritance Tax
The rules on inheritance and its taxation vary from country to country, so it is important to check. In France, for example, your children have an indisputable claim and you cannot simply leave everything to a surviving spouse. Be aware that if you are still legally deemed to be domiciled in the UK, HMRC will have a claim on your estate too.
Income from savings that are tax free in the UK, such as some NS&I accounts and cash ISAs, will be liable to tax abroad. But depending on where you live, there may be other tax-free alternatives, such as the Livret A in France (an instant access account which pays interest free of income tax and social security contributions).
If you are receiving income into a UK bank account, it is normally cheaper to use a currency broker to convert your sterling into the currency of the country where you live. It may offer a fixed exchange rate, setting rates up to a year in advance.
Canada, Australia and New Zealand provide free health care for all. In France, Spain and Italy there is good state care and most medical care is available at reduced cost, but it is a good idea to buy top-up medical insurance to cover the part you will have to pay. Medical cover is essential in the US, South Africa, Cyprus and Jamaica.
Choosing an area
Living permanently abroad is very different from taking a holiday. If you have identified a potential retirement destination, visit several times throughout the year. Check whether it has enough, or too much, social life for your liking, shops that stay open all year long, and a medical centre within easy reach.
Buying a property
It is all too easy to be taken in when buying property abroad, coping with an unfamiliar legal system in a foreign language. The surest way to avoid problems is to buy an existing property rather than one that is off plan, through a reputable estate agency with offices in the UK as well as in the area where you are buying. Appoint an independent lawyer who is not connected to the property or development you are buying, who understands both UK law and the law of the country where you are buying, and is fluent in both languages.
A final point to think about is the need to build some flexibility into your plans – just in case things do not turn out the way you expect. Jackson points out that some of her clients choose to split their time between the UK and another country and that a financial planner can help you build the possibility of having a ‘bolthole’ in the UK into your plan.
She says: “The benefit of having a chat with a financial planner is that they will explain these possibilities. They will emphasise the need to build some flexibility into the plan and the importance of initially seeing how you like living in the country, rather than moving there lock, stock and barrel. Perhaps it might be seen as a black cloud intruding on the sunshine but it is good to have someone, like a financial planner, to make you look at all the practicalities.”
The value of your investment may fall and you may get back less than you invested.
If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset.
The value of property in generally a matter of valuer’s opinion rather than fact and the true value of a property may not be recognised until the property is sold.
Property can be difficult to sell; this could mean property may have to be sold for less than expected.
Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation, which is subject to change.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
All information within this article is for illustrative purposes only and is not intended as investment advice; no investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us or your financial adviser.
The opinions expressed in this document are not the views held throughout Brewin Dolphin Ltd.
What to do next
Square One Law, Brewin Dolphin and Deloitte have joined forces to offer advice on personal finance from a wealth management, legal and tax perspective.
For general enquiries about financial planning, please call on 0191 230 7060. This number will take you through to the Brewin Dolphin team who will pass on your query to the relevant expert.
Alternatively, fill in the form below to outline your enquiry. Our experts will respond to your enquiry within three working days by your preferred method of contact. If you can't see the form below - click here to open in a new window.
Any investment mentioned in this article is for illustrative purposes only and is not intended as investment advice. Any tax advantages mentioned are based on current legislation accurate at the date of print which is subject to change. The opinions expressed in this document are not the views held throughout Brewin Dolphin. No Director, representative or employee of Brewin Dolphin accepts liability for any direct or consequential loss arising from the use of this document or its contents