For many Brits, the idea of retiring abroad has always been popular, and that doesn’t look likely to change any time soon.
Whether it’s the tantalising combination of better weather and a short flight home that parts of continental Europe offer, or further afield to different continents, the prospect of retiring to sun-soaked locations has – and continues to be – very alluring.
However, it can also pose certain challenges.
In this week’s blog, we’ll explore the key considerations for Brits looking to retire abroad, to ensure a smooth transition and a dream retirement.
Have a Clear Picture:
The first step to a successful retirement plan is having a clear idea of what your ideal retirement actually looks like.
Do you want to play golf every day?
Do you want to eat out every day?
Do you want to spend time outside with nature?
Would you prefer city living and having everything on your doorstep?
Do you have pets? Will you want nice places to walk the dogs?
Do you plan on travelling a lot? Will you need to be close to a major airport?
Do you have family in the UK? Will you want to return regularly?
Everyone’s ideal lifestyle is different, so think about yours and have a (relatively) clear picture of what this looks like.
Researching the Perfect Destination:
Choosing the right location is the next crucial step to any retirement plan abroad.
There are many factors to consider here, so it’s worth creating a checklist for yourself to see how these things match up with your ideal lifestyle. Include things such as:
- Cost of living
- Climate
- Healthcare costs and quality
- Local culture, cuisine, and amenities, and how these fit with your lifestyle and hobbies
- Language?
- Local infrastructure
- Economic stability?
- Be aware of how time zones might impact your life.
It’s essential to conduct this research and understand how a place will match up with your desired lifestyle in retirement.
Remember that no holiday can replicate living somewhere. Just because it’s a nice place to visit, it might not make it a great place to live.
Make sure to review a potential destination through the right lens. It can also be worth testing out “mini retirements”, by trialling places and spending a longer period of time there – say 1 month or more – to get a better feel of what a more permanent life might look like (for example, renting an apartment instead of a hotel, and living a more normal, sustainable lifestyle while you are there).
Healthcare:
Access to quality healthcare is a top priority for retirees.
You should understand how your NHS coverage might be affected and review the alternatives in your chosen destination.
Not all countries have an NHS equivalent service, so there could be a price to pay for private health insurance. In many countries, this can also be a requirement as part of visa conditions.
Whether it is state funded or private, most countries do have quality healthcare options, so the key is to check this against your personal requirements and ensure that you secure coverage that will be at least as good as the healthcare you would receive in the UK.
Currency Considerations & Investments:
Managing your finances in another country can be challenging.
Retiring abroad can often result in a need for currencies other than GBP, so it’s important to understand how exchange rates might impact your income, assets, future returns, and ultimately the sustainability of your retirement expenditure over time.
It’s important to review your asset base – for a lot of people, it can make more sense to reallocate GBP investments into local currency, to remove currency risk as much as possible and avoid the need to constantly convert money whenever you withdraw from your nest egg to fund your retirement expenses.
By holding your assets in GBP, each withdrawal would be exposed to fluctuating exchange rates, which can be unpredictable and make income withdrawal strategies more difficult.
UK State Pension:
Check your eligibility for State Pension, as this can provide a guaranteed source of income in retirement and greatly assist the sustainability of your wider assets or retirement nest egg.
You can read our full article on State Pension here.
It’s also crucial to understand how your State Pension might be affected when retiring abroad – UK State Pension might not increase with inflation in all countries, so it’s important to understand your own personal situation and rules regarding your chosen destination – otherwise, there is a risk that, once you start drawing your State Pension, it could be frozen at this level forever.
This might still be optimal, but it’s always best to be prepared so that you can make fully informed decisions that put you in the best possible position in retirement.
Private Pensions:
Reviewing your pension arrangements is a crucial part of retirement planning, particularly if you are looking to move abroad.
Most people have built up various pension pots over the course of their careers – this can often result in a lack of organisation, with different pensions coming with different degrees of functionality, different fees and charges, money being invested in different ways, and not to mention multiple log ins and links to remember.
It can often be worth consolidating these pots into a single pension, with a clear and co-ordinated approach. Not only does this ensure that money is invested correctly and line with your objectives, but it’s also far easier to manage and keep on top of with one simple set of charges and log ins.
In most cases, retaining UK pensions is perfectly suitable, but depending on your personal circumstances, there can be some situations in which transferring your pension overseas can be beneficial.
If you think this might be relevant for you, transferring a pension overseas can be more complex, so we would suggest seeking specific professional advice (get in touch and one of our in-house experts would be delighted to assist).
Bank Accounts:
Some UK banks have historically looked to close accounts for non-residents, so it’s important to check with your bank when you intend on leaving the UK.
In any case, it’s usually preferable to have a local bank account in your new country of residence.
If for some reason you tend to keep larger amounts of cash, or if you travel a lot, it can also be sensible for expats to open an offshore bank account in a 3rd jurisdiction (such as Jersey or the Isle of Man). This can provide two main benefits:
- Multi-currency accounts and ease of use when travelling and requiring different currencies, and;
- Added security by keeping larger amounts of money in a safe and highly regulated jurisdiction. This is particularly relevant if your chosen retirement destination is somewhere considered to be a high-risk jurisdiction (or at least higher risk than developed countries like the UK).
Financial Planning & Tax Considerations:
Every country has a different set of tax laws, so you will need to be aware of this – especially around the taxation of income & gains, which will likely fund the bulk of your retirement spending.
It’s essential to understand all the tax rules in each jurisdiction you are exposed to, so that you can minimise your tax burden both now, before you go, as well as into the future.
Similarly, it’s important to understand the structures in which you hold assets – tax advantaged accounts like ISAs or pensions might be tax efficient from a UK perspective, but that might not be true in the country you choose to retire to.
For example, ISAs are tax free in the UK, but withdrawals could be taxed in other countries. Similarly, many people expect to receive 25% tax free cash from their pension pots, but that is a UK law and might not be recognised in other countries, resulting in all pension withdrawals being fully taxable.
It’s important to review this in advance of your move, as there could be effective actions you could take before you become non-resident.
This is another complex area where professional advice can add significant value.
Inheritance Tax (IHT) & Estate Planning
This is an area that trips up many expats, who assume – incorrectly – that UK IHT will not apply to their estate on death because they no longer live in the UK.
IHT receipts received by HMRC have been trending significantly upwards for years, and expat estate errors are certainly a contributor.
Remember, your residency and your domicile are not the same thing – you can change your residency status relatively easily, which will likely happen soon after your retirement abroad.
Your domicile is much more difficult to lose, and the overwhelming majority of British expats will remain British domicile.
Therefore, UK IHT WILL apply on death.
As such, it’s important to engage in IHT & Estate Planning to ensure that your estate passes in line with your wishes, with as much of this as possible passing to your loved ones rather than to HMRC!
Similarly, it’s also worth reviewing your Will to understand how this might be affected by your move abroad – it may or may not be accepted in your chosen destination, and sometimes you may need to draft another Will in your new location (particularly if you have assets situated there, like a house for example).
Ultimately, you should never leave it up to chance and assume that your estate will be managed effectively and that your assets will pass in line with your wishes – this is unlikely to happen if you have not made any provisions to make it so.
Conclusion:
Retiring abroad can be an enriching experience for Brits looking for a change of scenery and a dream lifestyle.
However, organisation, coordination, and effective financial planning are the keys to turning this dream into a reality.
By navigating these things effectively, retirees can confidently embark on their international retirement adventure, sleep safely knowing that no nasty surprises await, and really sit back and enjoy the experience.
A financial planning firm with international expertise can provide invaluable guidance and help you to secure and maintain a prosperous retirement abroad.
By Technical Team @ Abacus
Please keep in mind that, whilst we aim to update these articles periodically, the content could be subject to future rule changes. Always make sure to speak to a qualified professional to ensure you have the most up to date information and are taking regulated advice around your specific circumstances.