Retiring abroad

• Apart from differences in price, local VAT or sales taxes may vary considerably, even within the EU.
• Some exclusive locations impose restrictions on purchasing property: for example, to settle in Jersey you may need to purchase a property costing over £1million.
• Inflation may be a factor, especially if you will be living on a fixed income: we are becoming used to a low rate of inflation in the UK but in some countries the rate is higher.
• When reviewing this matter, don’t forget to take account of the health and lifestyle issues shown below.

• Usually in the country where you will be living, unless your pension is from the UK Government service. It will normally involve filing a local tax return. However, if there is no Double Taxation Treaty between your new country of residence and the UK, it will be taxed in the UK.
• Bear in mind that under the current rules your state retirement pension will only be increased once you leave the UK if your new home is within the European Economic Area (all EU countries plus Iceland, Lichtenstein, Norway) or Switzerland or in a country with which the UK has a social security agreement that includes state pensions.

• No, they can remain in the UK although you will not be able to invest further funds in an ISA whilst you are not a UK resident.
• If you are not resident in the UK for more than five consecutive tax years after leaving, then any capital gains made since leaving will not be taxable in the UK, although your new country may seek to tax them. However, there can be capital gains tax (CGT) savings to be made as some countries have favourable CGT rules (for example, there is no comprehensive CGT regime in New Zealand). Selling everything before departure may not be a good idea.

• Yes, most countries tax income from investments and some impose an annual wealth tax on the capital value of your assets.
• You will need to check the local rules very carefully and assess the impact on your spendable income. You should seek professional advice on where it would be best for investments to be held.

• Despite what you might think, personal tax rates in the UK are not very high compared with the rest of the EU and many other countries, when you take into account regional and wealth taxes that add to the overall tax burden. It is wise to assess what your net income will be for at least the first five years of your retirement.
• PKF prepare a Worldwide Tax Guide each year that gives an overview of the tax regime in most countries. Click here to download a PDF version of the guide.

• It is important to take great care over visits. If you have never lived in the UK, you can visit the UK for up to 182 days in one tax year but not more than 90 days on average (over any four-year period) without breaching the test for tax residence in the UK. However, recent tax cases have established that if you leave the UK to retire overseas, these visiting rules may not apply if you have failed to establish that you left the UK permanently before later visits began. These rules are due to change from 6 April 2012, when a legislative test for UK tax residence is to be introduced. You should take specific advice on making visits back to the UK.
• As regular visits may indicate that you have not “severed all links with the UK” it may also be difficult to establish that you have relinquished your UK domicile status. This will particularly be the case for inheritance tax (IHT) where a ‘deemed domicile’ rule applies. Under this rule, even if you are domiciled outside the UK for other tax purposes, your UK domicile will be retained for IHT purposes for three calendar years after your departure.

• There can be disadvantages to buying a home. The value of a house that you own may be subject to an annual wealth tax. Home purchase taxes can be higher than the stamp duty equivalent in the UK. You can, however, claim main residence relief (from UK CGT) on your overseas home.
• France and Spain, like many other countries, imposes strict succession (forced heirship) rules on property. It must pass to your children or other family members when you die. Renting avoids this issue.
• Conversely, selling your former UK home (or letting it out on a long lease) and buying a property in your chosen retirement country would help towards establishing that you have left the UK permanently.

• The value of your assets are likely to be subject to IHT, either in the UK - if you have not established a new tax ‘domicile’ - or in your new country. Your UK domicile status will in any case be retained for three calendar years after you leave the UK. In addition, it is common for assets situated in a country (for example, a villa) to be taxed there even if they are subject to IHT in the UK. In this case, credit is given to remove double taxation.
• This is not a problem in all countries: for example, India does not have an IHT charge.

• It is always a good idea to keep your will up to date and it is essential to create a new will in the country that you move to. This helps to ensure that your funeral wishes will be respected and will make it much easier for any assets held in that country to be realised and distributed to your chosen beneficiaries. You need to take local laws into account; for example, France and Spain have very strong ‘forced heirship’ and property ownership rules.
• If you retain assets in the UK, it is necessary to keep your UK will under regular review. If a later foreign will is made, without specifying that it applies only to the foreign assets, it will automatically revoke the existing UK will, meaning that your estate will partially dealt with under the intestacy rules. In addition, your UK will should specify that it deals with your UK assets (and any other assets not dealt with specifically by the foreign will). You should bear in mind that tax rules are constantly changing, which means that the tax effectiveness of your wills should be regularly considered. It is essential to ensure that anyone having a will prepared receives expert advice from professional legal advisers.

• Existing policies in the UK should be reviewed to see if a change of tax residence affects the benefits that you might receive.
• You should investigate the question of insurance in your chosen country. It may be expensive to change your arrangements at retirement.

• It may not matter while you are on holiday but when it comes to mundane issues (like sorting out your gas bill) you will find it hard to deal with officials and financial paperwork in a foreign language. You may need to rely on advisors who speak English and should budget for this cost.
• On a personal level, not speaking the language can be very isolating unless there is a thriving community of UK expats.

• In retirement you are likely to need medical care so check out the local facilities. Within the EU there are arrangements to ensure that your UK National Insurance Contributions will entitle you to use the public health services. However, these may not be up to the standards you are used to. If private health care is the only option, investigate the insurance costs.

• While it is easy to keep in touch electronically, there is no substitute for a visit to see the grandchildren. You should estimate the likely cost of a visit.
• Alternatively, if you are in a holiday location, your family may regard your new home as a hotel!

• Check if you need to take a local driving test and whether there are restrictions on older drivers. We become attached to our cars, but it may be better to sell your right hand drive car before you go and buy another one locally.
• If there is a bus service, will you be able to claim a free bus pass?

• It is quite easy to feel safe and secure in the relaxed atmosphere of a holiday but crime may be more of an issue once you have moved to your retirement home.
• Some advance research (reading the local press, talking to residents and even insurance brokers) is always sensible and will highlight any precautions you may need to take.

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