There are many important financial considerations to plan for when you retire to a new country, and the sooner the better. Here is a checklist of the important ones.
Many British people on holiday in Spain, France, Portugal, Cyprus and Malta fall in love with the local lifestyle and start making plans to move here. Or perhaps you are at the final stages of your move, or have recently arrived in your new country. There are many important financial considerations to plan for, and the sooner the better.
Here is a checklist of the important ones.
- Tax residency and obligations
First and foremost, you need to establish if and when you become resident in your new country for tax purposes. There is a list of criteria that make you tax resident. If you meet any of them you are generally liable for tax there on your worldwide income and gains, and possibly on your wealth and estate too, depending on the country. You need to register for tax and submit annual tax returns.
You also need to understand the UK tax residence rules since it can be harder than you think to lose UK tax residency. Where necessary, the double tax treaty will determine where you pay tax.
If you own a property abroad and are not resident in the country, you may still have local tax obligations. Likewise, if you have income arising in the UK you need to establish whether you pay tax in the UK or your country of residence.
- Tax planning
Income and savings taxes are higher than they used to be in many countries, but do not let this put you off. You can often structure your savings and investments to be tax efficient. Seek specialist advice on what arrangements are effective and compliant in your country of residence.
Do not presume that what was tax efficient in the UK is tax efficient elsewhere. You will probably need to replace existing arrangements with ones designed for local residents and it may require a solution that takes both tax regimes into account.
Many expatriates keep their savings and investments in Sterling. This puts your income at the mercy of exchange rate fluctuations, which can have a significant impact on your income.
A good rule of thumb is to match your assets to your liabilities, so if you are spending Euros, your assets are in Euros. However you may have other considerations. Perhaps you will return to the UK one day, or want to leave an inheritance to UK resident children, or do not have confidence in the Euro.
It is often good to have some diversification in currencies. Choose flexible arrangements which allow you to change currency if necessary.
Retired people rely on their pension funds to provide much, if not all, of their monthly income. There may be ways to improve your private pension funds to make them work better for a UK expatriate.
- Inflation and your long-term security
Do not underestimate the risk of inflation. It will reduce the spending power of your savings over your retirement years. It is important to take steps now to protect your wealth in real terms, so that you can enjoy the standard of living you are used to right through retirement. With life expectancy increasing, this may be longer than you expect. Allow for extra expenses along the way, such as healthcare issues, home renovations, new hobbies etc.
- Investment strategy
The first rule of any investment strategy is that it should be specifically designed around your circumstances and short and long-term objectives. Your circumstances drastically change with retirement and a move to a new country, so your strategy needs to be professionally reviewed to establish how it should be adjusted to suit your new life and goals.
- Estate planning
This is a major issue when you move to a new country, as it may have different laws regarding succession and tax. France, for example, has a strict succession law. In France and Spain the local succession tax works quite differently from UK inheritance tax and, depending on your circumstances, can be particularly complicated.
Most British expatriates remain UK domiciled and so continue to be liable for UK inheritance tax, so you also need to take that into account.
You also need to understand how probate works in your country of residence, and anywhere else you have assets, and find out if there are steps you can take to avoid probate for your heirs.
While you can do a lot of research online these days, taking advice from a professional tax planning and wealth management specialist is invaluable. It is the only way you can be sure that you have not overlooked anything, and that you have established what all your options are and how suitable they are for you.
2 August 2013
Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.