After years of hard work, you may have dreams of packing up and heading for sunnier climes in your retirement – and it seems that more and more people are considering turning that dream into a reality.
A survey reported by FTAdviser found that 59% of high net worth individuals in the UK are thinking about moving abroad.
The main incentive was an improved standard of living in retirement, followed by lower property costs, and reduced tax rates.
Before you make the enviable decision to live a life of sun, sea, and delicious food, there are a few financial factors to consider.
Read on to find out five important financial considerations if you’re thinking of retiring abroad.
1. Check your State Pension eligibility and consider transferring your personal pension to an overseas provider
You can still claim your State Pension if you live abroad, provided you qualify for it in the UK.
You must confirm with HMRC in which country you want to receive your pension. You can only receive it in one country, and you’ll be paid in the local currency. The amount you receive may change due to varying exchange rates.
If you are eligible for the State Pension but don’t need it yet or don’t want to claim it yet, you can still choose to defer it when living abroad.
You’ll receive the same recoup payments for your deferral as you would in the UK, which is 1% extra for every nine weeks you defer. So, if you’re eligible for the full State Pension and defer for a year, you’ll get an extra £12.83 a week.
You may also want to move your workplace or self-invested personal pension (SIPP) to a provider in your new home country.
There are a few reasons you may choose to do this. For example:
- You may not want to exchange the currency due to poor or varying exchange rates.
- You might find it easier to keep track of pension regulation changes.
- If you are still working, your employer may offer you a pension from a local provider.
You can transfer your UK pensions to an overseas provider as long as the new provider is a qualifying recognised overseas pension scheme (QROPS). To qualify as a QROPS, the provider must meet certain conditions set by HMRC.
You can also set up an international SIPP to hold funds in foreign currencies, including euros, US dollars, and Australian dollars. This can potentially remove any losses from exchange rate fluctuations when you begin drawing from your pension savings in another country.
When transferring your pension overseas, there is usually a limit to how much of it you can transfer, known as the “Overseas Transfer Allowance” (OTA).
If you don’t have protection, the OTA is £1,073,100. Where a relevant transfer exceeds the available OTA there is a charge of 25% on the excess.
There’s a lot to consider when transferring a pension, and moving one abroad can be even more complex. As such, it is a good idea to seek financial advice from an expert adviser before deciding to transfer.
2. Assess the cost of living in your desired retirement country
As you read earlier, the primary incentive for most people who want to move abroad is an improved standard of living in retirement.
The perception of an improved standard of living is likely based on both the warmer climate and the comparatively lower costs.
But even if the country you want to move to is significantly more affordable than the UK, it could be a good idea to get an understanding of what your future outgoings might be.
This likely means revisiting your financial plan and could even open future possibilities that were previously unattainable. For example, it could mean you can retire earlier than you initially planned.
So, when assessing the cost of living in your new home, you might consider:
- Property costs, including any taxes such as Stamp Duty or Council Tax, or their equivalents
- Food
- Transport and fuel
- Moving costs
- The costs of returning to the UK when you want to, which could be considerable if you move as far as New Zealand, Australia, or the US.
You might also think about the potential for costs to rise in the local area. For example, if you are moving somewhere desirable, the property or food prices could increase over a short period of time if it becomes popular with tourists and other retirees.
A financial planner can work with you to estimate your outgoings and help you build a plan based on your new budget that ensures your finances support you in your new home.
3. Understand your tax liability in the UK and your new home country
When you live abroad, you may be liable for local taxes in your new home country and the UK. How much tax you pay and where you pay it depends on where you are considered to be a tax resident.
For example, you may have to pay Income Tax on your pension income, if it exceeds the Personal Allowance.
If you are a UK tax resident, you will pay at your marginal rate based on the UK thresholds. If you are an overseas tax resident, you may have to pay the local rate of Income Tax, which could have lower thresholds meaning you will pay more tax on your pension.
If the country you move to doesn’t have a double taxation agreement with the UK, your pension may be taxed twice, though you can usually claim relief to get some or all of this back.
You may also be liable for taxes on your savings and investments at local rates depending on your tax residency status and the country your holdings are kept in.
Moreover, you may still have to pay taxes on your UK property if you keep it. This might include Council Tax or tax on your rental income, if you let it out.
Understanding your tax liability before moving abroad can help ensure you remain tax-efficient in both the UK and your new home.
4. Update your protection
If you have financial protection or insurance policies in place, you may want to update your cover when you move abroad. At the very least, it’s wise to check if the insurance will remain valid in your new home country.
For example, you will likely need to update your life insurance policy to ensure your loved ones are still supported if something were to happen to you.
Some insurers may be able to adapt your existing policy, while others may recommend you transfer to a local provider or one with international expertise.
5. Revisit your estate plan
When you move abroad it is important to update your estate plan to ensure your will accounts for the local heirship rules, to limit your Inheritance Tax (IHT) liability and to ease the process for your executors.
For example, many countries, including France, Italy, Spain, and Germany have forced heirship rules, which could conflict with your will unless you specifically account for them.
Furthermore, if your assets are liable for local IHT rates, you may want to consider making changes to your estate plan to limit your liability. This might include gifting certain assets to your beneficiaries or establishing a trust in their name.
Get in touch
A financial planner can work with you to ensure your finances continue to support you and your goals if you want to retire abroad.
They can help you create a tax-efficient plan that incorporates your new budget and the local tax system.
To speak to a financial planner about retiring abroad, get in touch.
Email admin@stonegatewealth.co.uk or call us on 01785 876222.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
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