It?s the time of year when many people visit countries like Spain, France, Portugal, Cyprus and Malta, fall in love with the lifestyle and start thinking about living there. Or perha
It?s the time of year when many people visit countries like Spain, France, Portugal, Cyprus and Malta, fall in love with the lifestyle and start thinking about living there. Or perhaps you?ve already decided to move to one of them and are house hunting. Or perhaps you own a holiday home and hope to move over permanently once you?ve retired. Whatever your situation, this article looks at some of the key financial issues you should be considering. It will also be useful for readers who have recently made the move.
Whenever your personal situation significantly changes, for example, you get married or retire or receive a large inheritance, you need to consider how this affects your existing financial planning and whether you need to adjust your investment and tax planning strategies to keep them effective. A move to a new country is a major change ? you?ll be faced with a new tax system, investment environment, cost of living, currency, property ownership structures etc. All these and more need to be taken into consideration, and the earlier the better, if you want to avoid costly mistakes or missed opportunities.
Looking at taxation first, the starting point is to look at the residency rules of both your new country and your home country so you can establish where you should be paying your taxes ? it?s not always as straightforward as you may think. If you sell up in your home country, move to, for example, Spain, permanently and spend most of the year there it?s more than likely you?ll be tax resident there. If however you keep homes in another country and spend time in both, the situation may not be clear cut. Each country has its tax residency rules, so you need to familiarise yourself with both and how they interact.
You also need to consider where income is generated, because although you are liable for tax on your worldwide income in many countries, income arising in another country may also be liable for tax there, depending on the terms of any double tax treaty.
You need to thoroughly research the local taxation rules, from tax on employment or pension income, to tax on savings and investments, to tax on wealth, to property taxes etc. I?ve never met anyone who is happy to pay more tax than they need to, but you can only set up your assets to pay as little tax as possible if you fully understand how all the options are taxed.
To get the best results, you may have to shift existing arrangements into new ones. For example, British people are used to ISAs being tax efficient, but that?s no longer the case once they are tax resident in countries like Spain, France, Portugal and Cyprus. You now need to look at what tax efficient arrangements are available in your country of residence and how you can use them to your benefit ? many expatriates have been pleasantly surprised!
In countries like Spain and France you will probably also want to consider the impact of local succession taxes as well as any inheritance tax in your home country, and establish if there are ways to limit the impact on your estate. It is often possible to mitigate or avoid both inheritance taxes.
When it comes to your savings and investments, you need to review them to make sure they are specifically designed for your current objectives for income and growth. A good wealth manager would look at your tax and investment planning at the same time as you need to combine the two if you are looking to preserve your wealth in real terms.
If you?ve moved abroad from the UK currency is obviously an important issue. In order to avoid exchange rate risk and costs you would normally look to match your assets to your liabilities so that you are paying your local bills with your local currency rather than converting from Sterling all the time. However before you convert it all you need to consider whether you may return to the UK one day or if your savings will be inherited by heirs in the UK. In any case you may wish to keep some currency diversification in your savings and investments.
If you?re a retiree much or all of your income will be provided by your pension funds so you should establish if there are ways to make them more efficient. For example, UK pensions remain governed by UK rules even if you leave the UK – they will be denominated and the income generated in Sterling and you may not have the flexibility to set up the underlying funds to suit your expatriate lifestyle. Moving private pensions into a QROPS would give them much more flexibility; they can be converted to Euros any time you wish and they may also provide tax advantages countries like France, Spain and Portugal.
If it sounds like there is lot to research and think about it?s because there is, and I?ve only had space to touch on some of the issues here. You will make your life much easier, and be reassured that you haven?t overlooked anything, if you take professional advice. Established large wealth management firms like Blevins Franks can advise you on most aspects of your financial planning, including tax and estate planning, savings and investments and UK pensions.
By Bill Blevins, Managing Director, Blevins Franks
3rd August 2011
