IF YOU are tempted to spend your golden years in the sun and escape overcrowded, polluted London, you are not alone. Emigration from the UK reached a record high in 2008 and that was before the introduction of a 50 per cent higher tax rate and the impending austerity measures. But planning is essential if you want to live this particular retirement dream.
Few expat pensioners appear to regret their decision – the NatWest International Personal Banking Quality of Life Report, published last week, reveals that 71 per cent believe they made the right decision in retiring overseas and 58 per cent say their experiences have been better than expected.
Still, while careful planning lacks the romance of a spontaneous decision, it will ensure that your idyll won’t be troubled by the complex web of tax directives, residency guidelines and currency fluctuations. Relocating your entire life inevitably causes its fair share of paperwork but minimising the red tape and avoiding the pitfalls will make your retirement overseas a calmer, more pleasant experience.
Leaving the UK tax system is now much harder than it used to be, says Ronnie Ludwig, partner in the private wealth team at accountants Saffery Champness.
Prior to last April, it was simply a case of making sure you were not in the UK for a certain number of days – 90 days per year over four years or no more than 186 days in any one tax year. This has since been tightened up – you may have to cut your ties with the UK: no property, no UK credit cards, no UK mobile phone as well as removing yourself from the electoral register.
“If you don’t tick enough of these boxes, then HMRC can deem you resident in the UK and you can end up being taxed twice. This is an absolute nightmare for older people who may have little experience of the tax system and then panic,” Ludwig adds.
Chris Mills, tax director at Grant Thornton, agrees that you should make sure you are clear about your tax status and know what you are getting yourself. He points out that countries can vary substantially in their tax treatment.
For example, if you sell your principal property in the UK before you move, then you won’t pay tax on it. If you sell it after you have moved, the proceeds may count towards your taxable income. Equally, depending on your Isa provider, you may be restricted in your choice of investments if you are resident abroad, warns BestInvest’s Adrian Lowcock.
REORGANISE YOUR FINANCES
Expat pensioners would do well to reorganise their financial affairs to take advantage of and adapt to the new regime under which they will be living. This may leave you paying less tax but even if you end up paying more you should still consider whether it is worth it for the better quality of life and perhaps for more efficient healthcare services.
For retirees who have spent their working lives in the UK, their main source of income is likely to be their pensions. In most cases, you should make sure you arrange for your pension to be paid gross and you will then be taxed accordingly in your country of residence.
This regular international wiring of funds incurs two costs: the transfer cost and the currency fluctuation. Through firms such as Moneycorp pensioners can arrange a regular payment, often costing only £4 per transfer, and are able to fix the exchange rate for a minimum of six months if they think it could move against them.
Retirement overseas is well worth considering, but it pays to take off those rose-tinted spectacles and seek specialist advice.
focus on | life abroad in western Europe
Western Europe is the destination of choice for retirees heading overseas thanks to its proximity to the UK, its warmer climate, and its perceived slower pace of life.
Many choose not to retire to a designated expat community, according to NatWest research, and 87 per cent own their home outright.
For many pensioners, healthcare will be an increasingly important cost. Luckily, the state healthcare systems of most European countries are open to British expats.
If you are registered with the local authority in Spain – this can expose you to tax – then you have the same healthcare rights as a native. The Centre for Future Studies’ Frank Shaw says that the language barrier can be a big issue for retirees in the state healthcare system – you may wish to go private but this will be expensive. In France, you are entitled to French healthcare, which is world-renowned, but you must be in receipt of a UK state pension and an E121 form to avoid paying contributions. This will cover you up to a certain amount; top-up insurance is recommended to pay for the rest.
focus on | offshore banking
No matter where in the world you are retiring to, offshore banking could be for you. Far from being the exclusive preserve of financial whiz kids and the mega-rich basic offshore packages and financial advice are available to anyone retiring with as little as £5,000 in cash.
Well-known international banks such as Barclays Wealth, HSBC and Abbey International can set up offshore accounts in secure, stable, tax efficient countries. For a monthly fee of £25 and a minimum deposit of £5,000, HSBC International can offer you a basic offshore package, including 24 hour internet and phone banking in English, international money transfers, a choice of currencies and the possibility, depending on your country of residence, of interest paid gross of tax. Packages get more luxurious and tailored for more complex needs the larger your deposit.
For those more liquid, £50,000 can buy you the comfort of a Relationship Manager Service with Barclays Wealth. These managers offer specialist advice on sophisticated international investment, savings and mortgage circumstances.