Choosing a retirement destination
Expats often do not feel a strong connection to the land of their birth and are particularly drawn to retirement outside the UK. Having lived their lives in different parts of the world they do not wish to move back to the cold and damp of the UK and choose to retire abroad.
Europe is by far the most popular destination for Brits with Spain, France and Portugal heading the list. Asia and the Caribbean are increasing, especially with expats who have worked in the region, but the numbers are still small compared to Europe. The climate and lifestyle that goes with it is the attraction for many; playing golf, sailing in the Mediterranean, spending time walking or relaxing in the sunshine.
There are practical issues that should be considered before making the decision to spend your latter years in a new country, including the availability of a permanent residence visa if you are moving outside the EU. Healthcare is clearly a particular concern as you get older and you will need to consider the quality and cost of healthcare. This is not made easier as the uncertainties of Brexit continue. The ability to stay in touch with friends and family is another consideration. How easy will it be to get back to see friends and family as well as how much it will cost and how long it will take for them to come to see you.
When deciding where to retire many will be drawn to places where they have spent happy holidays. However, even your favourite holiday destination can be very different when you are living there full time. Out of season some places have a limited permanent population, regular attractions and seasonal bars and restaurants can close and you need to be sure that there will plenty to do. On the other hand if you live in a popular holiday destination it can be very crowded and busy in the main holiday season, which may be fine for a two week holiday, but can be wearing if you are living there full-time.
The old adage ‘try before you buy’ is well worth considering. Travel to the area out of season for a period and talk to people who have made the move. In most countries there will be an established expatriate community available to help you to settle in and you can access online forums to answer your questions.
Cost of living in retirement
In many places the cost of living can be part of the attraction with consumer prices in Spain 17% lower than the UK and rental prices 28% lower. Prices are even better in Portugal with consumer prices 24% lower and rentals 32% below those in the UK. The cost of living is not the motivation in France, however, with consumer prices 13% higher than the UK and, although rentals are 12% lower, overall consumer prices including rent are 5.6% higher.
The other side of cost of living is funding your new lifestyle. If you have investments, a pension or rental income that you can use to cover your living costs you will need to consider the impact of currency fluctuations on your income. You will need to be sure that if there is a significant shift in exchange rates you will still be able to support your new lifestyle. If you have any concerns you may need to consider the pros and cons of transferring any investments to the local currency.
You will also need to consider the tax implications of your new situation. Even if you become tax resident in your new home, UK source income, such as rental income, may remain taxable in the UK. You can no longer pay in to ISAs once you are no longer tax resident in the UK. Premium bonds and other NS&I investments can be purchased but you will need to have a UK bank account and may be taxable in your new country. In some countries (eg. the US with its strict gaming and lottery laws) local laws may prevent you from holding Premium Bonds.
If you are selling your property in the UK it is worth considering the rules on capital gains as gains are either not taxable, not taxable in certain circumstances or taxable at a lower rate in some countries. It is well worth taking advice to ensure that you structure your finances in the best way possible to take advantage of the tax rules where you are going to be resident taking account of the tax treaty with the UK.
Most people retiring abroad will receive their state pension and potentially a private pension. The basic state pension for 2018/19 is £125.95. You can continue to claim your pension if you retire abroad wherever you live. If you move to a country in the European Economic Area (EEA) or one which has a reciprocal social security agreement with the UK, you will receive the same increases as those pensioners who stay in the UK. If you move to other countries your pension will be frozen unless and until you return to the UK. You can choose to be paid every four or every thirteen weeks and the money can be paid into a UK bank or directly into an overseas account in the local currency.
You will need to contact the International Pension Centre and you can find out how moving or retiring abroad affects your pension – and how to claim it on the Government website.
Private pensions are usually paid into a UK bank account, although you can arrange to have an international account. If you have a sterling and euro account with the same bank there will not normally be any fee for transfers from one account to the other.
The tax treatment of your pension income will depend on the country where you become resident, but there are ways in which you can minimise tax in some countries. The Non-Habitual Resident tax regime in Portugal that allow you to receive non-Portuguese pension tax free. Independent, qualified advice can be very helpful.
The other issue that you need to consider is inheritance rules and inheritance tax. In France, Spain and Italy the rules on who you can leave your property to are different to the UK. In France for example your children have an indisputable claim. You may also remain liable to inheritance tax in the UK if you are still deemed domiciled in the UK. With different rules, rates and other factors to be taken account of, it will always be best to take legal and tax advice before you make the move so that you are aware of the issues and potential solutions.
Many of us have a clear idea of the sort of property that we want to retire to: a French farmhouse in the countryside, an apartment on the Spanish coast, a villa with a pool in Portugal. There is always a greater feeling of security and permanence that comes from owning your own home, but it is worth considering whether to rent or buy. The property market in many European countries suffered major falls during the economic crash with over-supply added to the recession. Those caught by the fall found themselves unable to sell their property. This is not a problem if you are happy in your new home and do not wish to leave, but if there are issues or you need to return home for health or family reasons owning your property can leave you unable to sell up and return. Many markets have recovered, but the risks always remain alongside the potential for capital gains.
Renting property can give greater flexibility, meaning that if your circumstances change due to issues like family illness or you simply decide that you want to return to the UK, you do not face the same risks. Long term rentals in some holiday areas can be difficult to find though and what is available may not be ideal for living there permanently. It is well worth researching the market online and investigating during an orientation trip.
Once you have made the move it is time to make new friends, establish new or old hobbies and enjoy the lifestyle. In most areas there will be established groups of expats and locals with similar interests and participation will be key to settling easily in to your retirement in the sunshine.