Retiring Overseas
The Institute of Public Policy Research suggests in a report that one in five pensioners will leave Britain to live overseas by 2050. These findings are supported by surveys from Age Concern, Saga and the ONS. It is relatively straightforward for UK residents moving to any of the European Economic Area countries (that is countries with full EU membership plus Iceland, Liechtenstein and Norway). In these countries UK citizens enjoy mutual residential rights, which means, that you can live in any of these countries, collect UK state pension in the local currency while it increases annually the same as it would in the UK.
Planning to retire to a non-EEA country is more complicated and requires discussion with the Foreign and Commonwealth Office about the particular regulations of that country.
Knowledge is Power
Gordon Lishman, Director-General of Age Concern says "Retiring abroad can be a great experience for many but the key to a successful move is knowing what to expect.” "Thinking ahead about your situation changing and what health and social care services and benefits will be available may help people to avoid potential problems."
When thinking about retiring abroad you should look at pensions, tax, health, and property.
1. Pensions
You can get a forecast of your state pension entitlement from the HM Revenue & Customs (HMRC) or The Pension Service. UK residents retiring in any EEA country will receive full state pension including annual increases. You can find out more at Directgov
Most countries outside the EEA freeze pensions at the level of first claiming – this includes Australia, New Zealand and Canada. Private pensions should be payable worldwide but check with individual companies as some won’t pay into non-British bank accounts.
2. Tax Issues
Tax matters tend to be very complex so it’s best to seek professional advice
Tax laws are different in different countries, so how much tax you’ll pay can vary significantly in different countries - so do your homework. The HMRC lists the tax rules for many countries.
Also remember to look out for the regulations governing income tax, inheritance tax, wealth or capital gains tax, gift tax, and if there are any extra taxes that you are liable for.
It can be worth making sure you are classed as non-resident in the UK as this can have bearing on how much tax you’ll pay. Generally, to establish this with the HMRC, you have to spend less than 91 days per year in the UK, averaged over a period of four years. Once you have non-resident status, you will be exempt from paying UK tax on income earned outside the UK but still liable on income generated in the UK e.g. from letting out a property. More on this at Directgov
3. Health Matters
The International Pension Centre (IPC) in Newcastle deals with queries about UK benefits for overseas customers.
Once you arrive in your new country, register with the local authorities regarding welfare and health entitlements. If you are of pensionable age, ask the IPC for an E121 form which allows you the same healthcare entitlements as the locals - this usually involves paying for some if not all of your treatment so it’s best to also have private medical insurance. Those under retirement age will need an E106 form which entitles you to two years healthcare, after that you will need private medical care until either you or your partner reaches retirement age.
If you are receiving benefits such as disability allowance or widow’s pension in the UK, you will probably still be entitled to these elsewhere in the EEA, and in some non-EEA countries.
Don’t forget wills, these are very important. It is advisable to do this in your new country of residence as one drawn up in the UK could be dearer and liable to tax disadvantages. The best way of doing this is to seek professional advice from a lawyer specialising in your particular country’s regulations.
4. Funding the Property Purchase
It is always worth taking Mortgage and Finance Advice as to the best way to fund your overseas property, here are some of the main options:
a) Buying outright - this is the simplest method.
b) Re-mortgaging your existing home – if you have enough equity in your British home and don’t mind holding on to the property, this can be a good option.
c) Equity Release – allows you to release the equity in your home. Various schemes are available so seek advice to find out which may be suitable for you, and check with the HMRC if the income released is taxable.
d) Foreign Mortgages – It is becoming more common to obtain a foreign mortgage in the UK, this has the advantage of preventing language problems. If organising a mortgage in the country where you’re purchasing, hire an international broker and an independent lawyer who speak English. See more on Legal Advice