David Thompson outlines five important considerations when seeking to retire overseas
Data from the Office of National Statistics shows that around 200,000 Britons located overseas last year and many of these left the UK to retire.
1. Think about the motives
It sounds simple but before they buy the villa and pack their bags, ask your client why they want to move abroad. Are they looking for a better quality of life? Do they expect their income to go further? Do they want to move to a warmer climate for health reasons? Do they want to control all of their assets personally or is now the time to plan for their children/grandchildren? Is this a long-term plan or a temporary one?
2. Think about their return – before they leave
Do your clients want or expect to come back to the UK? This will have a significant impact on considering how to manage their finances and factor in their tax treatment. A description of issues and opportunities arising from residency and tax considerations is beyond the scope of this short article but the country, the amount of time someone plans to spend there, and whether or not they plan to return regularly to the UK will all have an important bearing on their tax position.
3. Professional tax advice
Tax treaties exist with most EU countries and agreements are also in place with many Commonwealth and ex-Commonwealth countries to ensure that expats do not face double taxation on income received, especially in relation to pensions.
However, many local variations exist dependent on the type and source of the income. Particular care should be taken when giving advice in relation to tax planning for inheritance. Some countries have very specific and unusual rules in this area with the capacity for relatives to inherit a liability in some cases. There are also taxes with which UK residents would be unfamiliar such as the French ‘wealth tax’ which is levied annually on a range of worldwide asset holdings.
The use of trusts and offshore wrappers can be highly effective in mitigating liabilities but expert advice in this area is essential.
4. Understand the legal requirements of the chosen destination
Every country is unique and different rules apply concerning buying, selling and passing on retirement property. Make sure you understand what would happen if your client needed to release equity from their foreign property or needed to sell up and move back to the UK. Do any special rules apply to foreign nationals relocating to the country they have chosen? Are there any special provisions or restrictions/penalties that apply if your client dies and relatives inherit the property? Equally important, but often forgotten, is the need to have a will, and also for your client to remind their next of kin where it is kept for when it is needed.
5. Inflation-proof the pension pot
If a client is moving to a country that doesn’t have a reciprocal agreement with the UK authorities, he or she could be one of thousands of people missing out on inflation-proof rises to their state pension. It’s even more important to advise them how best to inflation-proof their pension pot. If they are retiring abroad, they can continue to receive their UK state pension.
They can get pension yearly increases if they are in a European Economic Area (EEA) country or country with a special UK agreement. If they are not planning to live in another EEA country for some time, they will need the state pension forecast application form (BR19). They can get this from any local Jobcentre Plus office or social security office. If they are moving to another EEA country or anywhere else in the world they will need to inform the UK Pensions Service.
Advise them to draw up a financial plan before they leave. Professional advice is invaluable in the more complex planning areas I have outlined above. However, if they want further information on entitlement to health and pensions benefits abroad, this can be obtained from a number of government websites. A couple of useful links are included in the box below.
David Thompson is managing director, wealth investments and distribution at AXA Wealth
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