Six tips if you’re thinking of retiring abroad
1) Your property – try before you buy
People often sell their homes to follow their dreams, but it may make sense to consider holding off until you’re 100% sure you’re move abroad is the right decision. You could consider renting overseas first, to make sure you’ve got it right. That enables you to find your feet, work out exactly where you want to live and understand more about the actual cost of living abroad. You can find out more about how the cost of living compares between countries here. Meantime, you could consider renting out your UK home, rather than losing your foothold in the UK property market if there is a chance you might move back. Remember that you also need to think about the impact of rental income on your income tax bill.
For many people one of the main concerns about moving abroad is healthcare. The way it operates varies from country to country. So do your research and find out as much as you can about how it operates where you are going and look at private insurance options too. The NHS provides country guides to help you find out more.
3) State pension – how to claim
Your state pension will continue to be paid if you retire abroad and you can claim your state pension if you are within four months of state pension age, by contacting the International Pension Centre. If you’re planning to live abroad only part of the time, then you will need to decide if you would like your pension paid to your home in the UK, or your new overseas home, for the full year. So think about what is going to be easiest and most convenient for you, bearing in mind the potential for currency fluctuations too.
4) Keeping pace with cost of living
Did you know that whether you will benefit from any annual increases in the state pension once you move abroad depends on which country you retire to? Currently, if you retire to a country which is in the European Economic Area, Switzerland or Gibraltar, you will receive any annual increases made to the state pension. The same applies if you retire to a country that has a social security agreement with the UK, like the US, for example.
However, you won’t receive these increases if you retire to other countries where there is no social security agreement in place. This includes some popular destinations such as Australia. There are also two notable exceptions to the social security agreement rule, so if you retire to New Zealand or Canada, even though there is an agreement in place, you won’t receive any increases in your state pension.
You can check out the situation for the country you want to retire to on the government website.
It’s important to know if you will be left out in the cold when it comes to these increases, as you could see the value of your state pension quickly being eroded in real terms.
5) Private or workplace pensions here
Investing in a private or workplace pension will mean you have more than the state pension to live on when you retire abroad. You may even consider moving your pension abroad to eliminate any future currency fluctuations. But it’s worth bearing in mind that recent changes brought in by HMRC mean that transferring your private pension to an overseas pension scheme may incur a 25% tax charge. If this is the case, the best option may be to keep your private pension in the UK and take the income from it as normal.
6) Income – don’t let it get too taxing
You’ll still be subject to income tax on your state pension even if you move abroad. In some cases you will also be subject to tax in the country you have moved to, but many countries have what is called a ‘double taxation agreement’ which means you won’t be taxed twice. Again, depends on where you move to and what agreements that country has in place with the UK.
So don’t forget to check this out and keep it in mind when deciding your retirement destination. Planning your tax and finance can get complicated when you’re moving overseas, or spending time flitting between different countries. So you should consider seeking expert financial advice to help you get it right.
Jamie Jenkins is a personal finance expert at Standard Life