It is, however, a major life decision and should not be taken lightly. You should make sure you carry out your research to understand all of the issues that you will face. You can then make sure you enjoy your retirement in the sun (hardly anyone retiring abroad chooses somewhere with a worse climate than their home).
Here are out top ten tips to make sure you have a successful retirement abroad:
1. Decide where you want to live
Many people have a clear idea of where they want to live either because of the experience of friends and family or because of happy holiday memories. When planning for retirement you need to decide whether the lifestyle in and out of holiday season will work for you.
Even if you have a firm idea of where you want to live it is worth considering the options. Spain has many attractions, but there are many different areas. Do you want to live on the coast or is it worth looking a little inland to remain accessible to the coast but avoid the crowds? Do you want to live on the Costa Brava or further south where the weather is better out of season? Have you considered Portugal which has many of the same benefits in terms of climate and also enables you to receive your pension tax free for ten years under the Non-Habitual Residence scheme. France and Italy provide a very different set of options in terms of lifestyle and the type of property available.
Other factors to consider:
- What living costs can you expect?
- What property options will be available?
- Will you have access to state healthcare services, how good are they and what costs can I expect?
- Will you need to learn a new language?
- How easy is it to travel back to see friends or family if you want to or if there is a family emergency?
- Will you have to apply for a local driving licence or re-take your driving test?
- Will you be able to take your pets with you?
2. Try before you buy
Deciding where you plan to spend the rest of your life when you decide to retire abroad is a decision that cannot be taken lightly. Research is vital, but ultimately unless you actually have a clear idea what life will be like in your planned new home there can easily be factors that you have not considered. You should consider visiting your planned new home before you make decisions that will make it difficult to change your mind. Rent for a prolonged period, including living there outside the holiday season and use the opportunity to meet a range of people who have been living there for a while and find out what they wished they had known before they moved. One view can be biased by their own circumstances, but if you get a consistent message, it will be worth taking it into account.
3. Be realistic about your ability to finance your retirement
When assessing how much you need to live the life in retirement in your new home you need to be realistic in identifying all of the costs that you will face, including any property charges, local taxes, return visits to see friends and relatives. Whether you plan to rent or buy a property, you should ensure that you will be able to afford any mortgage or rental payments (plus any property taxes).
When assessing what you can afford you need to consider the impact of exchange rates on any income you will receive from your state and private pensions, plus any other income such as rental income from any property back in your home country. You will also need to understand what taxes you will have to pay in your new and old home country.
4. Understand your tax position
When you move abroad you are likely to cease to be resident for tax purposes in the UK. This will depend on your specific circumstances and will be determined by the application of the Statutory Residence Test. We have set out how this works in our article British Expats and the Statutory Residence Test.
Most countries will tax you on your income when you become tax resident in that country. The tax system is different in each country and it is well worth taking qualified advice before you move to your new country so that you can make appropriate plans for any income and investments you may have.
5. Make arrangements to receive your state pension
You can receive your UK state pension anywhere in the world and you should contact the International Pensions Centre to make arrangements. Payment can be made to a UK or overseas account.
Your pension will only increase each year if you are in a country in the EEA, Gibraltar, Switzerland or in a country with which the UK has a social security agreement. See How to Claim the UK State Pension Abroad for more details.
US citizens can also receive their social security retirement benefits abroad, although there are restrictions on receiving payments in certain countries (Cuba, North Korea and certain central Asian countries). See How to Arrange Your US Social Security Retirement Benefit When You Retire Abroad.
6. Consider your options for any private pension
Since 2015 all those with a private pension in the UK have had greater freedom to decide how to access their pension. You can take it all out of the pension and invest it however you want. If you are moving abroad you can also consider transferring it into an HMRC recognised overseas pension scheme. See the article Looking To Transfer Your Expat Pension? from specialist expat financial planners, AES International for more information.
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. You will need to contact your pension provider to check your options.
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.
7. Decide what to do about your UK property
It can be tempting to sell your UK property to take advantage of the equity built up to fund your new home abroad, especially given the often lower costs of homes abroad. However, it is worth considering the impact of this decision if you ever decide to return to the UK. It is almost inevitable that property prices will fall as well as rise in property markets and this may not be at the same time for each country. If a fall in the market in your new home country coincides with a change in your circumstances (family issues, health etc) forcing you to return to the UK this can lead to difficulties in re-entering the UK housing market as prices may have risen further making buying or renting difficult.
An option to selling can be to release the equity and take out a buy-to-let mortgage before you move and then rent out the property. The rent less management fees and tax may allow you to retain an interest in the UK market at a low or zero cost. If the mortgage is low enough or if you do not need to mortgage the property this can allow you to generate a regular income to boost your income or build your financial reserves.
If you plan to hold on to your property in the UK and rent it out you will have to check that your mortgage allows you to rent out the property and ensure that it is fully insured, including coverage if the property is empty between tenancies. It can be tempting to use a friend or family member to manage the property for you, but a good professional agent, although charging a fee, are more experienced in dealing with problems that may arise and can be more effective in finding a new tenant. There are, however, good and bad agents and it is always best to get a recommendation.
If you rent out your property you must register with the taxman’s non-resident landlord scheme. Your tenants or the letting agents you use will need to operate the non-resident landlord (NRL) scheme and deduct basic rate tax from rental income before they pass it on to you. You can set this tax off against your own tax bill, if you have one, at the end of the year. See our article Are You A UK Non-Resident Landlord? There’s Tax To Pay for more details.
8. Decide whether to rent or buy your home abroad
Most people retiring abroad decide to buy their property, but it is well worth considering whether to rent rather than buy. Even if you do intend to buy you should start by renting to ensure that you get a good feel for the lifestyle and avoid making a hasty decision that you may regret later. Six months renting can pay dividends in terms of ensuring you buy the right property in the right location at the best price possible.
Our article Property Options when Retiring Abroad goes into more detail on the options and the decisions you need to make.
9.Make sure you will have access to good quality healthcare
Retirement inevitably makes access to good quality health care an important consideration. You should check the quality of healthcare available in the state and private healthcare systems in the country. If there is any limitation to the access you will be entitled to you will need to consider private health insurance. If the quality is not as high as you would want you should ensure that you have an international insurance policy that will enable you to travel outside the country for care, if required. You can see more about this issue in our article Accessing Healthcare in Retirement Abroad.
Check into the inheritance tax rules
Inheritance rules vary around the world and in some countries you are legally required to make provision for any offspring. There may also be issues around the assets you hold in the country where you are resident and those back in your former home country. Inheritance tax (if there is any) in both counties will also need to be considered. You should therefore take qualified legal advice on the best way to record your intentions and see whether you need a will in each country.