Retiring abroad: Everything you need to consider as an expat
Written by E4E Editor on 20 April 2016
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Hundreds of thousands of British people dream about retiring abroad. Before doing so it is essential to understand all the financial aspects before you make your move.
While many people dream of a life on the Riviera with no financial concerns, retiring abroad is often a very different matter.
Global economic changes can have a significant effect on the quality of life when retiring abroad, especially if the retiree still has assets in their home country.
Many of the issues raised about retiring abroad are no different to moving abroad, and we recommend that you also read our moving abroad checklist which covers all of the essential factors to consider when moving abroad.
This guide to retiring abroad is designed for British people living or moving abroad, however the questions and considerations raised are relevant for anybody planning to retire abroad.
Choosing the best place to retire abroad
There are numerous surveys, rankings and lists of places to retire, but kay factors which make one person’s dream, could result in another person’s nightmare.
For British people, retiring inside the EU is relatively straight forward. However, you will still need to tell the UK and local government of your intentions for permanent relocation.
Once you decide to leave the European Union, there will be a number of considerations which will need to be factored in, all of which will determine whether you would be granted a permanent visa. These are likely to include the ability to support yourself through your finances, existing family ties and your health.
Retiring abroad: Impact of currency fluctuations on your income
Retirement is effectively the point in life to which you gain your financial independence. This means that your income is, to some extent, guaranteed without having to work.
For many retirees this will involve some form of pension, while for others, a property portfolio may provide a suitable income from rent.
Understanding your retirement income is probably the most critical factor when planning to retire, regardless of whether you plan to retire abroad.
However, retiring abroad brings with it a number of other highly important risk factors which must be considered.
Firstly, if your income is generated from the UK in pounds sterling, you must take exchange rates into consideration, and be sure that regardless of the inevitable fluctuations, your income will continue to support you, even if your disposable income drops.
For example, in recent years, the devaluation of the Euro has been brilliant for British people travelling abroad. However, it was not so long ago that the pound was almost on a par with the Euro This meant that for retirees drawing an income from UK based assets (such as pension, rent or other investments), their disposable income significantly fell, meaning that they were unable to pay rent, buy food and generally live the life they were accustomed to, through no fault of their own.
To avoid this happening to you, you must consider worst case scenarios surrounding currency while also fully understanding the cost of living in your new country of residence.
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 even a sniff of 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. If you would like to speak to someone about tax, mortgages or property management, you can request a free consultation with an expert using the form on this page.
UK pensions, QROPS and financial "advisers"
For most people planning to retire abroad, a pension is the most likely source of income. Whether you have reached retirement age already, or whether it’s simply part of your plans, your pension is crucial to a comfortable and enjoyable retirement.
However, pensions are potentially a very lucrative opportunity for offshore financial advisers who will research expats’ contact details through forums, websites, social media and phone directories to find expats with UK pensions with the aim of transferring them overseas into a QROPS.
While their ultimate aim may be beneficial to expats with pensions who intend to permanently reside abroad, they are not for everybody and it is vital to research before making any decisions.
Unlike in the UK, offshore financial advice is unregulated so the behaviour of a number of firms (although not all) is quite unscrupulous and thousands of expats have suffered at the hands of “advisers” who receive large commissions for persuading expats to transfer their pensions into a QROPS.
Pension transfers themselves are potentially also lucrative for retirees, offering a number of benefits including removing currency risks surrounding sterling. However, they are not for everyone, so you must do your research if you have UK pension, before making any decisions.
This is especially true if you were originally contacted out of the blue (cold called).
If you are ever in any doubt, always seek the opinion of a second, third or even fourth adviser and ensure you have total peace of mind before making any decision.
We have created a large section about pensions and QROPS transfers which explains the situation in full, but if you would like an independent view on any advice you have received, you can request a free consultation with one of our approved and wholly independent advisers.
UK State Pension when retiring abroad
If you meet the qualification criteria (i.e. you have paid your National Insurance Contributions) you will be eligible to receive the State Pension.
You can be paid this into a UK bank account or a foreign bank account.
However, you must tell the International Pension Centre that you are moving abroad, and you must let them know of any changes in circumstance and so you receive notifications from them. Occasionally they will require you to contact them to confirm that you are still alive, otherwise your state pension payments could stop.
As with retirees in the UK, your state pension payments may increase, providing you live in the EU, Gibraltar or Switzerland, or any country which has a social security arrangement with the UK.
As things stand, if you plan to retire to Canada, Australia and a number of other countries, your state pension payment will be frozen from the moment you start claiming it.
This means that its value will not increase unless you return home permanently, or meet other criteria as defined by the government. Ultimately, if you choose to live in a country where the state pension payments are frozen, your income with actually decrease over time due to inflation.
Drawing an income from your pension
In essence, the way your pension behaves when you retire abroad doesn’t change. You have various choices when you reach retirement age, all of which are set out in the pensions rules. If you leave your pension in the UK, you will also be subject to any changes in UK legislation surrounding pensions.
Even if you are classed as a non-resident for tax purposes, if you draw a pension from the UK, you will also be subject to UK tax laws as you are effectively receiving an income from the UK. You will still be eligible for the personal allowance which means you can receive up to £11,000 (2016/17) tax free.
This means that if you are only receiving the state pension from the UK, you are unlikely to have to pay tax on it – in the UK. However, you may be required to pay tax on your income locally.
You can also draw a lump sum from your pension, although depending on the amount, only the first 25% will be tax free in the UK. It is important to understand that this 25% may still be subject to income tax in your country of residence so it is important to check before getting stung with an unwanted tax bill. This is likely to affect how you withdraw your pension and when to ensure any withdrawal is tax-efficient.
Some pension providers will only pay money into a UK bank account, so you must speak to your pension provider before you move to ensure you can still receive payments when you relocate.
You are also likely to pay tax on the income received in your country of residence – although that will depend on where you live. There may also be a double taxation treaty between the two countries which means that you should only be taxed once.
If you are unsure about your tax responsibilities, enter your details using to form to request a free consultation from a qualified expert who can look at both the UK tax situation and the tax situation in your country of residence.
Request a free consultation about retiring abroad
If you are concerned about any 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 consultant from our network 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.
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Whether you're planning or already have retired abroad, request a free consultation to discuss any aspect of your retirement abroad