Retiring abroad: key financial considerations before you move

Retiring abroad is a dream for many people and one which becomes all the more alluring if you return from a fortnight in the sun to the questionable delights of the UK weather.

But how do you make that dream a reality?

Here we take a look at some of the important practical and financial steps you need to consider before retiring abroad – and how taking expert advice can help you make the move.

Choosing a country to retire to

If you’re already thinking about retiring abroad, the chances are you may have decided on your destination.

This choice may be based on previous knowledge of the country and the location – maybe it’s the place where you holiday every year – but you’ll need to consider other factors if you’re making your move permanent.

Think about questions such as:

• Will you need to learn a new language?
• What are the average living costs?
• What are the healthcare services like and how much do they cost?
• Will you be able to travel back easily to see friends or family if you want to?
• Will you have to apply for a local driving licence or re-take your driving test?
• If you have any pets, will you be able to take them with you?

Legal requirements and residency rules also need to be carefully assessed – do you have the right to live permanently in that country? Will you need to change your citizenship status or fulfil other obligations?

For example, following Brexit, current rules mean that UK residents living in EU countries need to apply for a new residence status to secure their rights. Each EU country also has its own specific immigration laws and visa requirements so you will need to consult the embassy or consulate of their host country for details on how to apply for a residence permit.

Selling up or retaining a property at home

Another key consideration is whether you plan to retain a property in the UK or sell up completely.

Some retirees choose to keep a property they can return to if things don’t work out as planned or to rent out as a way of securing additional income to fund their new life in the sun.

You may also want to retain your UK property with the aim of passing it on to your descendants so they can live there or can realise the value of selling it after your death.

All of these choices have different financial, tax and pensions ramifications so whichever route you choose, it is prudent to seek expert advice at an early stage from an independent adviser to discover where you and your family stand.

Finance and pensions

If you’ve decided on your destination and worked out what you want to do with your current home, figuring out the finances needed for retiring abroad is a crucial step. You’ll need to consider things like currency exchange rates and cost of living changes when you’re working out your money.

If you are retiring abroad and have no intention of working again then you will probably be relying on your pension to pay the bulk of your living expenses.

You will need to choose whether to transfer your UK pension abroad or just leave it in the UK. If you decide to leave your pension savings invested in the UK, your pension provider can either pay pension income into your UK bank account or pay it into a bank account in your new country.

Neither choice is straightforward. If you move abroad, you might not be able to keep your UK bank account. If you opt for an account in your new country, not all pension providers will send money to a non-UK bank account and those that do might charge you for it. With this in mind, it is important to talk through your options with your pension provider and bank.

If you’re considering moving your UK pension abroad, a Qualifying Recognised Overseas Pension Scheme (QROPS) might be an option. QROPS allow you to transfer your pension to certain overseas schemes, potentially offering more flexibility and tax advantages. However, transfers can be complex and may incur charges, so it’s important to get professional advice before deciding what to do.

State pension considerations

As well as any personal pensions you have, you will also generally be entitled to a State pension if you are a UK resident who has been paying National Insurance contributions for 10 years or more.

However, you will not receive your State pension until you are 66 (increasing to 67 between 2026 and 2028 with future increases to 68 planned). This could have a major impact on when you decide to move abroad.

In addition to when you receive your State pension, another important factor to consider is how much that pension will be.

While UK residents automatically receive annual increases in their State pension, those who live abroad may not do so.

Your State pension if you retire abroad will only currently increase each year if you live in countries in the European Economic Area, Gibraltar, Switzerland and 15 other countries which have reciprocal agreements with the UK. Live anywhere else – including in places such as Australia and Canada – and your pension will currently be frozen at the rate you first move abroad.

The All-Party Parliamentary Group on frozen British pensions estimates that approximately 450,000 British pensioners living abroad are currently on frozen pensions, meaning their real terms income is declining every year.

With considerations like this, it is easy to see why taking expert advice on retirement planning is crucial before deciding on your big move.

Healthcare and protection

Keeping fit and healthy can be a challenge, particularly in your later years, so it is prudent to consider what healthcare arrangements are available in your new country.

Healthcare systems vary from country to country and might not include services you’d expect to get free on the NHS. You may have to pay a patient contribution towards any treatment, or you may need to take out health insurance.

With all this in mind, you should take time to research healthcare access, healthcare entitlements and likely healthcare costs in your prospective new country and factor those into your financial calculations.

It’s not something you want to think about when planning an exciting new life abroad, but what would happen if you or your partner suffered a serious illness or died overseas? How would your income be affected, would you have to return home for good and how would such an occurrence impact on your family?

This is why talking to an adviser about financial protection is really important before embarking on that big move overseas. Your adviser will be able to explain the different protection policies available and how they work when it comes to policy holders who live abroad.

Tax and legal matters

Sadly, tax issues don’t go away when you move overseas!

Being an expat can bring some tax advantages but it does mean taking extra care and still paying the UK tax you owe.

The amount you have to pay will depend on many different factors, including:

• How much time you continue to spend in the UK
• How much of your income originates in the UK
• Whether or not your new country has a double-taxation agreement with the UK – if it does, you may be able to apply for tax relief or a tax refund

Living abroad can also affect how much capital gains tax you may need to pay on certain assets and this can differ by country or region. You may need to obtain specialist tax advice when considering your options.

Moving overseas also involves dealing with legal issues. Aside from visa and citizenship matters mentioned earlier, living abroad can affect how your estate is treated when it comes to inheritance.

Taking the plunge

As can be seen, retiring abroad involves a lot more preparation than packing for a fortnight’s holiday.

There are important financial, legal, tax, pensions and practical matters which require careful thought and considered actions.

However, by taking expert advice at an early stage, you can put a plan in place that will enable you to sail off into the sunset with confidence.

Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. Always seek professional advice before making financial decisions.