Retiring Abroad

Europe's most popular destinations

The situations can be very different depending on where you retire. Here are some factors to consider if you are heading for Europe's most popular destinations.

Generally you will be taxed wherever you are resident. The taxation of expats is complicated, but as a rule of thumb you will continue to pay UK taxes as long as HM Revenue & Customs considers you to be a UK resident. You will remain liable for British taxes if you spend 183 days or more in the UK, or your visits to this country average 91 days or more a year over four years.

Double taxation agreements with Spain, Italy, France and Portugal mean you will not be taxed twice on the same income and that you can ask for UK income that is normally paid net of basic rate tax to be paid to you gross. Such payments include interest on bank and building society savings accounts, as well as income from bonds, pensions and annuities.

If you become non-resident in the UK for tax purposes, income, wherever generated or paid, will be liable to tax in your new country.

One of the less pleasant aspects of moving abroad could be finding yourself liable for wealth tax. Portugal and Italy have no wealth taxes but residents of France and Spain are taxed. Although in Spain you get an allowance against your main home and against other personal assets.

Some offshore investments known as personal portfolio bonds can be advantageous for people moving abroad. France, unlike Britain, does not charge capital gains tax on growth of funds realised from these bonds.

If you own properties in Britain that you let to tenants, the income will be taxed in the UK and may also be taxed in your country of residence, but you can get a credit for the UK taxes paid so that you are not taxed twice on the same income. In Britain, letting agents are required to deduct basic rate tax of 22 per cent from the rent and send it to the Revenue. Where rent is paid directly to you, the Revenue may write to your tenants demanding that they send 22 per cent of the rent directly to them as a way of taking basic rate tax at source.

You are eligible to receive your UK state pension and occupational pension in full if you move to another country within the European Union.

The good news is that within EU countries such as France, Spain and Portugal your UK state pension will continue to increase in line with inflation, which is not the case for people who retire to countries such as the United States, Australia or South Africa. If you are a non-UK resident, pension income will be taxed by the country in which you live.

In France there is also a social charge in addition to the income tax on pensions. This is waived if you are receiving the UK state pension and you have completed a Form E121 from the DWP. The charge can affect people who retire early and are not yet eligible to draw their UK state pension.

Watch out if you move abroad before taking your pension. The ability to take 25 per cent of your pot as a tax-free lump sum is a concession available only to UK residents; if you become liable to tax in a country on the Continent before you start drawing your pension, you could find your lump sum taxed after all.

If you are retiring to Europe, you may be able to claim benefits in that country. The benefits you receive in the UK may also be affected by your move abroad. For example, if you are receiving pension credits in the UK this ceases once you become a UK non-resident, but you can still claim incapacity benefit in some European countries.

The chances are that most of your income will be paid in sterling yet all your future outgoings will be in euros.

People emigrating from the UK should seriously consider moving as much of their non-pension assets into investments and savings accounts that are linked to the euro. You may think the 5 per cent you can earn on cash on deposit in the UK compares favourably with the 3.5 per cent you can get in the Eurozone, but that extra interest can be wiped out overnight if exchange rates move against you. You can ask for your pension to be paid into an overseas bank account, but check you are not being charged an exorbitant exchange rate. Specialist foreign exchange companies allow you to fix an exchange rate for up to 24 months to protect yourself against currency fluctuations for regular outgoings such as mortgage payments.

Different countries treat inheritance in different ways and it pays to find out how your estate will be treated when you die.

When you retire abroad, you will need to make a new will to comply with local law. However, you will also need a UK will if you still own property in Britain. In many continental countries, including Spain and France, your will can be overridden to make you provide for your children rather than giving your property to your spouse outright, so you may want to take specialist advice on how best to arrange your affairs.

In France, beneficiaries incur the inheritance tax charge, not the estate, while unrelated beneficiaries, including unmarried partners, are charged more than close family members.

Once you become domiciled overseas you will be liable for UK inheritance tax only on property you hold here.

If you require any further information about the services that we provide or would like to review your financial planning position, please contact us

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