Before you
contemplate retiring abroad, it's vital that you work out whether or not it
is affordable, so that you are not forced to move back again due to
financial difficulties.
While some products are cheaper in
other countries, other items may be far
more expensive. Bear in mind that inflation may be higher
and that fluctuating exchange rates can radically alter the
funds available to you.
Contingency plans for 'worst case' scenarios,
such as long-term illness, should also be thought through, including any
benefits that you would not be entitled to abroad.
Pension and Social Security
Your pension
is likely to represent a significant slice of your income when you move
abroad. It is vital that you know how much you will receive once there,
and how it will be paid, to get the most out of it. Personal and company pensions will have different rules on what you can receive, and where. Speak to
your pension provider directly to find out more details. Remember, this
will be a key part of your income and it is worth finding out up front
the options available to you for your ideal destination.
You
could also transfer a private pension to a new scheme abroad, to avoid
losing value with exchange rate fluctuation, although such plans are
less common in Europe, where most people receive a state pension.
Where will your State pension be paid?
State
pensions can be paid to many countries around the world.
Regulations on pensions and the retirement age vary between countries.
The amount you can receive is based on a combination of these factors,
and others such as the length of time you have made contributions
through national insurance or similar, and other countries you may have
lived in.
If you receive a
UK state pension, it can normally be paid to you anywhere in the
European Economic Area, and the annual increases in the sum paid will
also be passed on to you.
Note
that in several countries, such as Canada, Australia and New Zealand,
UK pensions are frozen at the level they were when you moved abroad,
and do not increase with inflation.
Social security
benefits may continue to be paid in some countries, including
disability allowances, but not Pension Credit, Income Support and
Housing Benefit. For more information on the countries the UK has reciprocal agreements with, see the International Pension Service website for more details.
Pensions are
paid either into your home bank account, your account abroad, or can be
sent to you by post, either monthly or quarterly.
State and occupational pension taxation
Many countries have a double taxation agreements. State pensions from
to these countries are generally paid gross and you will normally only need to
pay tax on it in the country you receive it, and not twice.
If you are retiring abroad from the UK, you must apply to the UK foreign tax office to get gross payments on your personal pension abroad, , then go to your new local tax office to register it. For a full list of countries which have a double taxation agreement with the British Inland Revenue, click here.
The tax system
Each
country has its own tax laws, which often include peculiar or
unexpected quirks. These can catch out the unsuspecting immigrant and
professional tax advice, like that provided by our partners at STM, is highly recommended. Things
to consider, alongside income tax, are inheritance tax law, wealth tax,
gift allowances and capital gains tax.
You will also need to understand
your tax position in your current home country and whether you will
need to keep paying taxes there once you have moved.
Tax relief may be
available; again, as each country is different, research the specifics on this site for your chosen destination.
Taxes and tax rates
The
rate of tax you pay depends on your personal circumstances and the
taxation system of the countries where you receive income.
You are deemed a resident in most countries if
you spend 183 non-consecutive days (i.e six months) or more there each tax year. For taxation purposes,
this may also be broken down into the following categories:
- ordinarily resident: you generally live in one country, even if you are away for one entire tax year
- domicile: the country where you have your permanent home. This does not change unless you move your permanent home.
You can be resident without being domiciled in a
country, if you spend 183 or more days there in a tax year but retain
your permanent address elsewhere.
Conversely, you can be domiciled in a
country where you are not resident. There are several different
permutations that will decide your final tax bill.
You will be almost certainly be liable for income
tax in your new country. You will probably also have to pay tax on
overseas income in your current home country (overseas is classed as
anywhere outside that country).
This includes things like pensions paid
from abroad, rent from a property overseas and interest or dividends
from foreign investments.
In some countries, such as the
UK,
there is exemption from inheritance tax for a spouse in most cases.
This differs in other countries and you could be subject to inheritance
tax in your new country and your home country.
It has been customary in many countries to
under-declare income from property for tax reasons. This is a dangerous
practice to follow, as the authorities are clamping down on tax fraud
and often hold more information about you than you may realise.
For
example, in some countries, the tax administrators have access to your
utility bills and can see if the bills are suspiciously high when you
are claiming you are not in the country.
The European Union is encouraging countries to
work more closely together to clamp down on tax fraudsters with the
Mutual Assistance Directive.
Money and banking
Using another currency can not
only cause problems when buying day-to-day necessities, but the
exchange rate can make a huge difference to your finances when buying
property or setting up a business.
Assess the options open to you to
maximise your tax savings and income. It is wise to take professional
advice which could potentially save you thousands of pounds.
Banking
Opening
an account in the country you are moving to should make your life a lot
easier. You can open an account before you have even moved, which
allows you to set up mortgage payments and utility bill standing orders
so the services you need are active when you arrive.
You will also be
able to avoid heavy foreign exchange transfer charges which some banks
apply for importing your money from abroad.
However, your
location may affect the service you can expect from your bank. In major
cities and expatriate areas, staff will be used to dealing with foreign
customers. In more remote locations, this may not be the case and you
could find the bank tries to charge as many administration fees as
possible for your transactions
Internet banking can solve a lot of problems,
including transferring payments, and applying for loans and overdrafts.
Foreign language banks may offer their internet banking in English,
too, making your life easier.
Some countries
distinguish between resident and non-resident accounts. If you open an
account while still a non-resident and then change your status to
resident, you should inform your bank. It can sometimes affect their
ability to grant you overdraft and credit card facilities.
Where a local
bank is not your ideal solution, you have the choice of operating your
finances from your home bank account or from an offshore account. The
former can be extremely expensive, as all your transactions will be
subject to the exchange rate at the time and commission fees.
The
offshore option can be a good intermediate solution, as charges and
commission are often lower, and you have a good degree of privacy. They
are also used to dealing with non-residents on a daily basis and are
usually able to process transactions more quickly than your home
country's banks.
The downside of
offshore banks can be the huge variety in service, including long
(expensive) holding times on the telephone, although with online
banking this hurdle can be avoided. You will still probably be paying
more for all your transactions than you would with a local bank account.
Finally, you can also open a foreign exchange account in your home country (e.g. a euro account held in the UK).
This avoids the cost of exchanging currency and you will be able to
deal with English-speaking staff.
Overdrafts
The offer of credit facilities differs between countries.
Many banks are willing to offer overdrafts to expatriates, while others
are based in countries where the culture is based on having cash
available. In Spain, for example, many transactions are still in cash
rather than by debit or credit card.
You
may have to prove your residential status and cut through a lot of red
tape to be granted an overdraft facility – do not assume it will be
offered automatically or as easily as in your home country. You are
also likely to have to pay for the privilege.
Mortgages
You will normally need a bank account, and proof of income and identity to open a bank account abroad. It pays to go along armed with
passport photographs too, as these are often required for official
paperwork.
If you are borrowing to renovate, you are likely to need
detailed plans from your builder of what the work entails and a
breakdown of costs.
Once you have established a mortgage abroad, you will know exactly how
much is coming out of your account there each month, in the local
currency, which allows you to keep a better eye on your finances.
In your home
country, a common way to raise the equity needed for a place abroad is
to remortgage your family home, or take out a secured loan on it to
raise the money for deposits and so on. You will be dealing with
English-speaking companies and will have your banking history to back
up your request for credit.
You may be able
to draw down the mortgage in instalments, as and when you need it to
pay for stages of the deal, for example with a new build property. The
advantage of this option is that you are only making interest payments
on what you have borrowed so far, not on a larger amount that you do
not yet need.
In both cases,
remember that your home is at risk if you do not keep up repayments.
Only borrow what you can afford and do not be tempted to stretch your
finances too far.
Credit and debit cards
As
with a bank account in your own country, you will usually be offered a
debit card and chequebook as a minimum way of withdrawing cash and
operating your account in your new country. Many shops and restaurants
now accept debit cards, although there may be a minimum amount you are
required to spend first.
Chip and PIN cards are spreading throughout Europe as part of a
major drive to cut down on card fraud.
You might be
charged to use either debit or credit cards, or both, by local banks.
Read the account details before you choose your bank to find out what
the charges are. Some allow you a certain (small) number of
transactions per year before they begin charging.
A second
possibility is holding dual credit cards - one in your home country and
one abroad. This means you can have two different currencies to play
off against one another, giving you the scope to use the card of your
choice when exchange rates are in your favour.
Cash
Cash is still favourite in many
countries, where the colour of your money is readily accepted and unlikely to
cause you any problems.
One thing to bear in mind with
cash is the exchange rate and commission fees if you are withdrawing it
regularly from a foreign bank account. You could end up paying a lot of money
to use cash if it is not coming from a bank account in your new country.
Exchange control
Some countries, usually in developing regions such as Asia
and
Africa, impose foreign currency exchange
controls, normally to halt balance of payment difficulties. Such controls
prevent residents from buying and selling other currencies, and non-residents
from buying and selling the local currency.
If
you are moving to a country where exchange controls exist or could be put into
place, be wary of the implications this could have on your finances and your
ability to sell your assets there.
You may need to declare or register how much you will be bringing into the country before you go.
The chequing system
Banks
are likely to offer you a chequebook when you open a new account with
them. Some countries use cards a lot and cheques are barely used. In
others, cash is the major way of paying. You could be charged for each cheque you write, so make sure you are aware of the charges before you do so.
Various countries (notably Spain, Belgium and Greece) clear cheques on the day you pay them into the account, giving you the funds available immediately. Others, such as the UK,
may take a week to make funds available.
Remember that in
some countries, a comma is used instead of a full stop when writing
figures, and vice versa. For example, two thousand four hundred Euros
and twenty cents in France would be €2.400,20.
Money laundering prevention
Banks
in many countries are co-operating amongst themselves and with the
relevant authorities in a bid to cut fraud, with initiatives such as
Chip and PIN cards (see 'Credit and debit cards', above). Lengthy
cheque clearing times are also blamed on the need to prevent fraudulent
cheques.
Laundered money often finances crime and
terrorism. Keep your bank details private and do not disclose your PIN
to anyone, even if asked to do so in a seemingly genuine email or phone
call from your bank.
Be aware of devices at cash machines that look
suspicious and could lead to fraudsters removing money from your
account. Shield the keypad as you enter your PIN, even at checkouts
when paying for goods.
Making a will (in country of origin and destination)
While
it is possible to write your own will, it is advisable to employ a
solicitor to do it professionally, particularly as foreign laws may
make the inheritance process more complicated.
Your will also becomes
invalid if you get married or remarried; conversely, it is not made
invalid automatically through divorce. Otherwise, a will remains in
place until it is revoked.
Inheritance tax laws differ from country to country, as do the tax-free limits; these can change year on year, too. You can minimise this
through various exemptions, by planning ahead.
It is
possible to write a will in your home country to cover your property
abroad, or you might decide to write separate wills at home and abroad
to cover your different assets.
Note that
administration in some countries can take a long time, which you will
need to find out about beforehand. It is likely to be easier if you
have made a will in that country on the foreign part of your estate.
This part of your estate can also be wound up simultaneously with that
at home.
In general,
moveable items held abroad, such as bank accounts, should be suitably
covered by a will at home. However, immoveable items, such as property,
are usually better covered by a will in the country where they are
held.
As personal circumstances always differ, seek professional advice from expat financial experts such as our partners STM, to be able to pass on the most from your estate.
Fixed inheritance rights
Depending
on the law of the country where the will is held, your estate may have
to be divided in certain ways. For example, in France your spouse will
not inherit your half of a joint property unless you have inserted a
clause in your contract too change this,.
In Dubai, the law does not allow
property to pass from husband to wife. Find out what laws your estate
will be subject to and, if you are not sure, consult a professional.
Intestacy
Dying intestate can severely reduce the amount of your estate that
passes on to your desired beneficiaries. Your assets will be subject to
government laws on what is given to whom, and if you have no close
family or identifiable relatives, the government may take all of your
estate.
Intestacy can also make things more difficult for those you would wish
to inherit from you, as laws are more complicated and could be more
expensive.
Advisors
English-speaking
legal help can be found worldwide. Make sure your solicitor fully
understands the law of the country you need to know about. A
consultation with a qualified person could ensure hundreds of thousands
of pounds from your inheritance tax go to your desired beneficiaries
rather than the taxman.
Social security contributions for early retirees
You
do not usually need to pay national insurance contributions once you
have retired early, unless you work again before retirement age.
However, you might need to make extra contributions to enable you to
receive your full basic pension. You cannot claim your state pension
until you reach retirement age.
In the UK,
you can use the government's pension forecaster to work out what your
payments will be. Once you have registered online (click here
to go to the Pension Service website) you will be sent a passnumber
allowing you to log on.
Working or setting up your own business
Working
abroad can have many advantages. As well as providing extra income, it
is an excellent way to meet local people or other expats, and if you
are learning the language can give invaluable practice and extra
vocabulary.
Some form of employment can also help lessen the 'culture
shock' of moving to a new country, as you are immediately involved in
the new lifestyle and have less time to become bored or lonely.
If you are
intending to set up a business abroad, you will need to be aware of
local employer laws, including the need for work permits and employees'
rights if you intend to take on labour.
You might have to prove that
you have a large sum of money behind your business venture and you will
invariably encounter administrative red tape. Some countries are
relaxing this need for large sums, as the growth of internet business
proves that a strong concept is potentially worth more than the money
up front.
Work permits
For members of the EU, moving from
one country to another within its borders entitles you to the same employment,
salary and social security rights wherever you go.
You will not require a work
permit, but note that any qualifications you hold might not be recognised by
your new country. Holding a passport for your new country, or having a partner
who does, can also circumvent the need for a work permit.
Where a work permit is required,
if you are moving from the EU to another country, or to the EU from elsewhere,
you can usually arrange it with the consulate in your country beforehand. Plan
for this in advance, as it may take several weeks to arrange.
It helps if your
skills are highly sought after in the country you are moving to, as the work
permit may be fast tracked. An offer of employment with a company in your new
country can also speed things up.
Employment regulations
Be
sure you know your rights both as an employee and employer. As
mentioned, the EU member countries conform to the same employment
rights as each other, such as working time and parental leave.
There is
variation on the enforcement of these laws throughout the EU, however; Spain, Italy and Greece are notorious for their bureaucracy, while in France the laws are rigorously followed. See the individual country pages on this site for the laws that apply there.
Other countries have their own laws, which must be adhered to, to avoid costly fines or even lawsuits. America,
for example, has far fewer laws than in the EU. You can find more
information on the laws that affect you from around the world at the British Chamber of Commerce site.
Social insurance
You
will need to continue to make national insurance payments in your new
country if you are working. You will also have to make sure any staff
are covered by local social security laws.
EU countries subscribe to
the same social security conventions, so you will be responsible in the
same way as at home if you currently live in an EU country. See the
Council of Europe website for more information.
Outside
of the EU, (and Canada, New Zealand and to some extent Australia which
have reciprocal agreements with the UK) countries have their own
schemes.
Find out about what the exact arrangements are from your new
country's inland revenue service.
Looking for a job
Jobs for expatriates are usually advertised in local
newspapers in
English, and on assorted websites. You may also find jobs through recruitment agencies, advertised in
the windows of shops and bars, or by word of mouth from other
expatriates in the local community.
Before you go, browse websites that could put you in touch with a
company abroad and arrange work and work permits from home. This can
give you the security of knowing you will have further income once you
get there.
Speaking the local language is an obvious advantage, as it dramatically
widens the options available to you. It's also a great way of
practising your language skills and meeting local people, as it allows
you to work out of the expatriate community.
Sole traders and limited companies
As with a business in
your home country, there are advantages and disadvantages to being
self-employed or running your own business.
You will have to inform the
tax office in your new country of your status and assess the potential
tax reasons for whichever option you choose.
Planning is key, so make sure you know the tax situation and have worked out in detail your estimated earnings.
More information for small businesses can be found on various websites; in the UK, see the government's
Business Link site.
In all cases, it's best to seek professional advice to maximise your
income and reduce your tax liability.
Restrictions on ownership
As a foreigner moving to a new country, you
may be subject to
restrictions on your ownership of a business there. If you are moving
within the EU this will not be an issue, but may have implications in
other countries.
Check before you go if you are intending to start a
business, particularly if you will be reliant on the income once you
have moved.
Trade licences
Whether or not you require a trade licence depends
largely on what industry you intend to work in. If you are importing or
exporting products, you will need to check if a licence is necessary.
In the UK, the
Department of Trade and Industry provide further information.
Bookkeeping and accounts
As in your home country,
keeping your accounts up to date is vital for any business. As well as
helping you to run the concern in the most efficient way, you will need
to have your accounts readily available for tax purposes.
If you keep
computer records, you may also be required to keep paper (hard) copies
to hand. For full advice, seek professional guidance, which could
ultimately help save your business money.