The key to making the most of your expat advantage is to understand the international opportunities open to you for the management and investment of your wealth.
You will need to take in to consideration the nation you’ve left behind and their tax rules. For example, if you’re from the UK originally then when you become non-resident in Britain for tax purposes you’re fairly free of the system, compared to an American living abroad for example.
You will need to understand the tax rules in your new country and also think about whether it makes any sense to remit money to your new or even back to your old nation – in most cases it’s usually safer to retain money outside of either jurisdiction.
Choices and decisions will all be based on your own personal position, as well as your personal objectives, risk profile, wealth status, age etc. However, they will also be influenced by the new world of opportunity open to you abroad.
In order to embrace your personal expat advantage, you should speak to an expert financial advisor. Through their knowledge you can advance your own understanding of the solutions and opportunities that are out there and find the investment path, offshore jurisdiction and secure wealth management plan to suit you.
Having worked hard and saved to build a decent-sized retirement fund, you’ll want to ensure you receive as much as possible from your pension pot when you retire. You must be aware, however, that your UK pension might buy less currency over time when you move overseas; predominantly through fluctuating exchange rates. Therefore, it’s important to budget for this and plan ahead.
In this section, we’ll give you essential information about both state and occupational pensions to help you receive the maximum value from your pension when you retire abroad.
If you are eligible to receive the State Pension, it is still possible to collect this abroad. However, there are a couple of factors you need to consider. Currently, if you are eligible for the State Pension and live in the UK, the amount you receive will increase every year by the greater of earnings (percentage growth in average earnings), inflation (CPI) or 2.5%.
This increase will also apply if you move to:
- Countries in the European Economic Area (including France, Italy and Spain)
- Some of the countries with a social security agreement with the UK (see list below).
Therefore, if you retire today to some popular retirement destinations (such as Canada) you will not be entitled to the yearly increases.
You can choose to have your State Pension paid into your UK bank account or directly into an overseas account in your local currency. As the UK government converts your currency along with many other expats, the exchange rates you receive are likely to be competitive.
It is recommended you contact the International Pensions Centre (www.gov.uk/international-pension-centre) for further information on how moving abroad might affect your pension.
NB: this is based on current understanding (Aug 2017).
Countries where you can normally receive UK State Pension increases:
Isle of Man
Occupational or personal pension…
Your occupational or personal pension(s) will typically be paid into your sterling bank account in the UK. You will, therefore, need to arrange for a company to convert and transfer this to your foreign bank account for you.
Currency brokers normally offer you better rates compared to your bank (up to 3% better). This could make a big difference to the amount you receive from your pension when abroad.
Additionally, if you’re concerned about the exchange rates moving against you, some specialist currency brokers give you the opportunity to fix your exchange rate for up to two years ahead. This can be done on a one-off basis, or as a series of regular payments to your foreign bank account.
Fluctuating exchange rates can have a big impact on the amount you receive from your pension. By fixing the exchange rate, you can protect yourself from the volatility of the currency markets. However, if the exchange rate rises, you will not benefit from this.
Check with your pension provider to find out if they can transfer your pension directly into your foreign bank account.
Qualifying Recognised Overseas Pension Schemes (QROPS)
You might also have the option to transfer your UK pension to a Qualifying Recognised Overseas Pension Scheme (QROPS). A QROPS is a pension scheme based in a jurisdiction outside the UK but which is broadly similar to a UK registered pension scheme. Transferring could give you more control over your pension while you’re abroad. There are various tax implications you might want to consider before transferring to a QROPS, so we would recommend you contact an Abbey Wealth Financial Adviser for further information.
Even when you retire abroad, you might still be liable for UK tax. Your residency status is normally the main factor used in determining your tax liability once you’ve moved abroad. You can find more information about residency status by visiting www.gov.uk/tax-foreign-income/residence. You must tell HMRC if you are leaving the UK to live abroad permanently.
Below, we have provided general information about some of the taxes you may want to consider before moving abroad, based on our current (2017) understanding of the tax issues might face. We would strongly recommend you contact a tax specialist prior to retiring overseas to gain a fuller understanding of your individual tax situation.
You will normally have to pay tax on any UK income you receive, even if you’re not a UK resident. This could include your pension, rental income, savings interest and any wages from the UK. You can find out more here: www.gov.uk/tax-uk-income-live-abroad.
Capital Gains Tax
Generally, you’ll only be charged UK capital gains tax on assets sold while resident overseas if you used to be a UK resident and you return to the UK within five years of leaving, or you make a gain on a UK residential property. Other countries will often have their own versions of capital gains tax which you will want to be aware of prior to moving abroad.
Most countries will have some form of inheritance tax and we suggest you consult a tax adviser before relocating to ensure you are aware of the inheritance tax position of the country you’re moving to. It is possible you could have to pay UK inheritance tax even if you live abroad, you can find out more here: www.gov.uk/inheritance-tax/when-someone-living-outside-the-uk-dies.
Double taxation agreements
You may also be taxed in the country where you have chosen to retire. If this country has a double taxation agreement with the UK, you may be able to claim tax relief or a tax refund in the UK to avoid being taxed twice.
Some of the tax-free investments available in the UK might be affected when you move abroad. For example, you will be unable to contribute to some tax-efficient investments such as ISAs if you become a non-UK resident. There may be other tax-free investments in your new country of residence which will offer tax protection. You will need to consult a tax specialist for further information.
Buying a property regularly features on lists of the ‘most stressful life experiences’. Purchasing a house overseas can present even more challenges!
To help you through this, we’ve put together a ten-step checklist to buying property abroad:
- Plan your finances - what can you afford?
- Do your research - where do you want to buy? What kind of house would you like? How much should you expect to pay?
- Find your perfect location and property - it may seem obvious but you must visit the country you’re moving to. Once you find an area you’d like to buy in, visit the location at different times during the year. You may find the area you liked in in one season has a completely different feel in another. For example, it might be a popular holiday destination in the summer but have no shops or facilities open in the winter.
- Get a good independent lawyer - find a lawyer fluent in both languages (if applicable), with local knowledge and no ties to the vendors.
- Do your background checks - can you build on the land (if that is your plan)? Is the house legal? Lawyers perform different functions in different countries so don’t assume they will perform all the necessary checks.
- Open a local bank account - this will give you easy access to your money in the local area. If possible choose one where the bank manager speaks fluent English, it will help in the early stages of your move.
- Arrange a deposit - this should mean your perfect property will be taken off the market while all the paperwork is finalised.
- Exchange contracts - sign the contracts to finalise the deal. You will also need to insure your property.
- Organise removals - you will need to organise removal of possessions from the UK. If you are taking your possessions (e.g. furniture) with you, you will need to arrange a company to do this. Arrangements must also be made if you plan on taking any pets with you. Talking of pets… if you’ve got furry friends you were hoping to take with you, it may be sensible to check with the DEFRA to see if your pets will face any restrictions.
- When you’ve chosen a destination and sorted out an address, it’s important to let the relevant authorities know about your new abode and provide them with details to forward anything important to. This means contacting HMRC, and also your local council. If you’re going to be paying for a UK-based bank account that you have no intention of using, it might be a good idea to downgrade the account to a standard, non-fee based account. The same goes for any credit cards – you’d be better off cutting them up, rather than risk taking them abroad and having the additional complications of cancelling them from overseas. Mobile phone accounts, old insurance contracts you’ll no longer need and any subscription memberships - don’t forget to cancel them, or change the addresses if you want to continue access.
Managing UK property…
For some, the prospect of retiring abroad means never returning home and therefore the default position is to sell any UK property to find the move abroad. Property prices in the UK make this all the more appealing as the quality and size of house abroad available at the equivalent price is much greater. However, this should not be the default answer for everybody. If there is a chance that you may have to return home at some point, you must consider the consequences of selling your foothold in the UK property market.
In the last decade, many retired expats who were unable to afford life abroad on their State Pension were suddenly also unable to move back to the UK as they would not be able to afford to rent or buy a house in the UK, even after selling their property abroad. This was due to the monumental rises in house prices in the UK outstripping virtually every other country.
While you may need a lump sum to retire abroad, you should consider your options with a UK property. One option is to release equity, start a buy-to-let mortgage and then rent your property. This creates additional management costs, however, the value of your property is only likely to increase, while also providing an option if you find that you have to move back one day in the future.
If you already have the capital to buy a home abroad, you could simply rent your house out and either use the rental income as part of your monthly income, or leave the income generated in the UK and build up financial reserves.
Remember though, any income earned from renting a property will be subject to UK tax laws and may also be subject to local tax your country of residence. You should always seek advice on the management of your property long before you retire abroad.
Relocating for retirement is a huge decision, but with more and more expats choosing to retire in style abroad, where their pounds will stretch further, it’s definitely an option worth giving some serious thought.
If you are concerned about any financial aspect of retiring abroad, whether you are planning or have already made the move, our experts are on hand to help…
Request a free consultation with a financial advisor who is qualified to provide:
- A detailed assessment of your current UK residency status, including recommendations on how you could reduce your tax burden
- A full analysis of your tax position in your country of residence
- Guidance on your current pension options, including any pension transfers which you may be considering
- Options and recommendations how to tax efficiently manage UK assets, such as UK property
- Opportunities to reduce the inheritance tax exposure on your estate
Your initial consultation is free and will help you plan and manage your retirement abroad.