Pensions, Benefits and Tax When Retiring Abroad

Once you’ve decided that retiring abroad is the right choice for you mentally and emotionally it’s time to approach the financial side of the move. There’s only one thing worse than not being able to provide for your future and that’s being unable to provide for your future when you’re stuck in a foreign land with no family nearby. It is almost certainly necessary to take independent advice about the issues of pensions and tax when living abroad, as there are so many rules and regulations which differ according to the countries in question and the individual circumstance of the retiree.

Transferable Benefits

In the EU, benefits are transferable, so that the NI and tax that you’ve paid into the UK coffers can be used to access the national health system in any other EU countries. This used to be done through the E111 form but this has now been replaced by the European Health Insurance Card (EHIC). It is free and you have to apply for it from the Department of Health, either online or by filling in a form at a Post Office.

Some other countries outside the EU have reciprocal agreements to allow UK citizens access to healthcare. They are mostly countries that are lining up to join the EU or Commonwealth countries like Australia, New Zealand and some Caribbean countries. A list can be obtained from the Department of Health.

Consider Insurance

It is important to note that these arrangements offer reduced cost, rather than free, treatment in many cases, and also that the standard of care may not be the same as in the UK. Also, the cost of repatriation, if necessary, is never covered. For people considering retiring abroad, health insurance should be seriously considered.

Pensions

In many countries United Kingdom citizens can make arrangements to collect their UK public pensions locally, although not all countries are treated equally. In many Commonwealth countries pensions are not index-linked, so they do not rise with inflation once payments have started. In the EU and some other countries, where legislation forces it, pensions are index-linked.

Fund Transfer

It is also possible to transfer a private pension into a fund based in your chosen country, certainly with EU members and many others. It is a long process and independent advice should be sought before embarking on it, but the advantages are that you will be paid in the currency of the country you are resident in and will not pay so much in foreign exchange commission and charges. The scheme that you transfer into must be registered with the Inland Revenue as a Qualified Recognised Overseas Pension Scheme (QROPS).

You will also need to take advice as to how to perform this transfer, whether to take a cash sum or an annuity, or both. In many countries the benefits may not be recognised in the same way as they are in the UK, which may give rise to an unwelcome tax charge.

Halfway House

There is a less arduous halfway house which is to use a pension product which allows payment in euros (some SIPPS offer this option) for beneficiaries living abroad. If your target country uses the euro, this could be the best of both worlds, payment without charges and exchange rate fluctuations, and the pension lodging in the United Kingdom where you may be more familiar how it works, the rules and regulations.

Taxing Matters

Taxation is a very complex issue and needs to be considered in conjunction with pension arrangements. Many countries have tax treaties with the UK so that you do not have to pay tax twice on any income, and the tax regime that you choose to go with depends on the residency arrangements. The rules as to where you are resident to usually depend on how may days per year you spend in each country. However, it is not necessarily the same country as the one you pay tax in. If you are dividing your time between the UK and France, for example, you can elect to be taxed in one or the other.

Beware the Taxman

However, think hard before trying the dodge of telling each country’s tax office that the other one is receiving your tax payments. The Inland Revenue are spending a lot of time and money identifying people with overseas accounts who they suspect of avoiding tax. The widespread use of computing networks in governments is making it easier for them to find law-breakers from their desks.

If you have income for a buy-to-let apartment in the same country that you are retiring to, it might be more cost-efficient to pay the tax on that income in that country, rather than in the UK. It could be that, like Dubai, for example, there is no tax on letting income at all.

Capital gains tax could well concern you if you need to periodically liquidate assets such as shares or property to provide money to live or make other investments. Again, if you have installed yourself in a country where there is low CGT or even none at all, then all the better.

Make the Right Choice for the Right Reasons

However, when all is said and done, when you have taken your advice and decided on your short-list, it will be far more important in the long run to pick a country where you will enjoy life than the one which will save you an extra bob or two.