Apermanent move overseas can make financial sense in retirement and can even leave you better off, according to new research from NatWest.
In a study of 633 expatriate pensioners, the bank found that 71 per cent said they had no intention of returning to the UK, while more than one-third thought that their financial position had improved since moving overseas.
The most popular destinations for retirees seeking warmer weather, better food, and affordable property are Spain, France, Ireland, the US, and Canada, according to a recent poll by Standard Life.
Of these, the easiest to emigrate to from the UK are those in the European Union – as well as Iceland, Liechtenstein and Norway. Under EU law, you are entitled to live in countries within the European Economic Area, where the UK state pension, along with any rises for inflation, can be collected.
However, taxation, pensions and residency requirements become more complicated further afield. Those who move to Australia, New Zealand or Canada will no longer receive rises in payouts from the state pension, as these countries do not have reciprocal pensions agreements with the UK.
Andrew Tully, senior pensions policy manager with Standard Life, warns that if such a contract is not in place, a basic state pension could halve in real terms over 20 years: “You need to be very careful your retirement income is sufficient to cover your living costs over a long period of time.”
People retiring overseas also need to decide where to keep their private pensions. Qualifying Recognised Overseas Pension Schemes (Qrops) permit British pensioners who are non-UK residents for at least five consecutive tax years to withdraw funds from international pension schemes in tax-friendly jurisdictions – such as Guernsey. State pensions cannot be transferred into them, though.
Keeping a pension in an offshore jurisdiction such as Guernsey – which does not charge income or capital gains tax on pension assets – remains an attractive option for people moving further afield, say advisers. For example, no Guernsey tax is levied on pension withdrawals from abroad, although taxes may apply in the country where you reside.
As well as the underlying charges for the funds the money is invested in, additional costs for taking out Qrops include a set-up charge of around 1 per cent of the pension’s value and an annual management charge of £1,000-£1,500.
However, as tax systems vary widely by country, those interested in taking out Qrops are encouraged to contact HMRC for more details of particular schemes.
A list of participating Qrops can be downloaded
Here are four countries outside the EU where UK pensioners can benefit from the current tax rules:
UK expats who are resident there can take benefits tax-free from an Australian Qrops at age 60 – but can only transfer A$150,000 (£89,793) a year into the “superannuation” scheme from an overseas pension.
Australia also offers a “retirement visa”, which allows foreign-born pensioners to buy a government bond for about A$750,000,
in exchange for a temporary four-year residency visa.
Holders receive interest on the bond investment, but the visa must be renewed every four years and retirees are not entitled to free medical care.
Richard Gregan, director
of Overseas Emigration Visas, the UK emigration advisory service, says that retirees who have adult children living in Australia are eligible for, and
should consider, a more permanent visa.
Under Kiwi law, pensioners with immediate family in New Zealand can be sponsored for permanent visas. Alteratively, the wealthy can effectively buy their way into the country via a so-called investor visa – a loan of about NZ$1.5m (£710,000) to the government. The cut-off age for these types of visas is 65, however. And New Zealand’s visa programme for skilled migrants is off-limits to those older than 56. A plus for owners of homes in New Zealand is that there is no stamp duty, inheritance tax or capital gains tax.
British pensioners are permitted to emigrate to Canada from this autumn provided they give the government C$180,000-C$220,000 (£113,000-£138,000) or a loan of $700,000 to $1m. The government refunds the capital after 5 years, but keeps any interest earned on the loan. Skilled migrant visas are available as well, but the cut-off age for eligibility is 55. In most parts of Canada, there are no restrictions on foreign property ownership provided you spend less than six months a year there.
Isle of Man
The island appeals to British pensioners who are averse to paying taxes but who don’t want to leave the UK. The maximum income tax rate is 20 per cent and liability to income tax is capped at £100,000. There is no inheritance tax or capital gains tax.