Top tips for British expats retiring overseas
Retiring outside of the UK is a dream for many. Perhaps you’re sick of the cold dark winters, or just want a better location from which to explore the world. Whatever your reason for considering retirement abroad, it’s important to take your plan seriously.
We discuss the top ten things to think about when preparing your finances for retirement overseas.
1. Currency planning for retirement
Your retirement outgoings won’t be in British pounds. It’s important to plan ahead for living under an alternative currency. Those certain of their retirement location should start investing retirement savings into their currency of choice. Currency planning is not just holding multiple bank accounts, but can also be done within pension and investment plans. Speak to your adviser about preparing your retirement plan to best suit your needs abroad.
Currency fluctuations are a risk to long-term financial planning. The cost of regularly exchanging currency can be crippling over time. If you have a long-term regular retirement income in GBP, such as a final salary scheme, it may be best to consider a transfer in order to align your pension wealth to the local currency. Alternatively, consider keeping a UK bank account open to collect payments and plan to move funds across to your local account quarterly or annually where costs apply.
A good currency exchange strategy is pound/cost averaging. By utilising a low-cost money transfer service, you can switch currencies regularly in order to gain an ‘average’ exchange rate, reducing the risk of lump-sum exchanges in a fluctuating environment.
2. Consider Private Healthcare
It’s important to insure your health. While you would be eligible to return to the UK for any serious treatment, healthcare provision abroad may not be up to the standard of the NHS. Visit local doctors’ surgeries, hospitals and explore any free healthcare available. Consider taking out a level of private healthcare cover you’re comfortable with.
Prudent planners hold both private healthcare plans as well as life and critical illness protection policies. Many UK providers do not offer insurance to those living abroad, so be sure to check your eligibility to claim under any UK based insurance you have in place. In some cases, even existing life protection plans exclude certain residences and activities. If you find your plan wouldn’t pay out due to where you live, replace it before you cancel it.
For those planning a ‘forever home’ abroad, make sure you consider your elderly years. Retirement abroad is for the long-term, so consider nursing and care costs. The cost of long-term care can be hugely detrimental to wealth, leaving little behind for loved ones.
3. Budget for visits to loved ones and make space for guests
Why retire abroad if you can’t entertain guests in your idyllic setting? When viewing properties, remember that you’re likely to have more visitors staying over than in the UK. No longer a taxi ride away, it would be nice to be able to offer a bed to loved ones rather than have them stay in local hotels.
While considering your own annual costs, factor in regular trips to see family and friends. Retiring abroad can be lonely at first, particularly if there’s a language barrier. You may find you’re tripping home more often than you thought, especially at Christmas, important events and family occasions.
4. Get to grips with the cost of living
If you don’t already live in your retirement location of choice, ensure you understand the local cost of living abroad.
Start with the essentials; check the costs of day to day utilities and housing. Many choose to rent at first. It’s hard to understand local hotspots to live until you’ve moved to the area. Like in the UK, some suburbs have inflated costs over property and lifestyle.
5. Understand the local tax system
The UK tax system is a minefield, but now you’ve got to get to grips with another one! It’s wise to read up on the local tax laws. In many countries, there are local and national taxes, and different taxes to the UK system.
Wealth taxes sometimes also include pension funds. Check the tax exposure of all of your financial assets and plan ahead.
6. Check your inheritance tax (IHT) status
Inheritance tax in the UK is not dependent on tax residence. Your tax domicile affects your liability to UK inheritance tax on worldwide assets. Check your domicile status, and consider when you may exit liability to UK inheritance tax.
A UK pension is a form of pension trust and so sits under the pension death tax regime. Check the death benefits in your pension plan, as well as potential taxation upon death outside of the UK.
Meet with a local will writer. Ensuring your wishes are met in the event of your death is important, and is something you’re responsible for. A local will writer can ensure your assets are dealt with properly, and in line with local regulation. You may be able to shield some of your money from death taxes with careful planning.
7. Tell HMRC about your UK tax status
When leaving UK tax residence, it’s prudent to inform HMRC. This not only ensures your own peace of mind and proper planning, but removes the risk of HMRC trying to chase you around for your tax return.
If you hold UK pensions in-payment, you can apply for a non-tax code from HMRC. Where your country of residence holds a double taxation agreement with the UK, you may be eligible for this ‘NT’ tax code. This allows UK pensions to pay out your pension income under PAYE without the automatic deduction of UK tax. Read our guide to UK taxation for expats, which includes a UK residency test flowchart and tips about UK tax ties.
8. Inflation planning in retirement
For those planning to live in a developing country, be mindful of the potential impact of inflation. If inflation is high, it may mean your budget won’t work over the long-term.
A country may seem cheap today, but in 10-20 years it may not be. The rising cost of lifestyle essentials must be considered as part of your long-term cashflow planning. Once retired, you will be solely reliant on your savings. Inflation-proof your retirement plan.
A good retirement plan pays you for a long time! Anyone retiring at 60 should expect to live for 25+ years without earnings. The long-term financial impact of inflation in a developing country over a long period of time could prove challenging.
9. Check your UK state pension entitlement
Understand your eligibility for the UK State Pension.
Currently, EU residents are eligible for inflation uplift to the state pension income annually. Those outside of the EU may not see the rise each year. Use the UK Government Gateway to find out your State Pension benefit and consider topping up if you haven’t yet reached the full 35 years’ entitlement.
10. Review your worldwide retirement savings
Assess your total retirement wealth. When planning retirement, count in your UK and international pensions as well as any other savings you’ve earmarked for your retirement years. Consider switching currency for long-term assets.
If you hold rental properties, assess the long-term income structure these will provide. Will you sell the properties for a cash injection or keep them for long-term income security?
Proper (pension) planning prevents p*** poor performance!
Ensure you make a financial plan for the long term and stay on track. Living abroad can present financial complications, but most of these can be mitigated with proper planning.
Review your pensions and wider wealth at least five years before retirement. Get a feel for the potential long-term and short-term costs of your lifestyle once you stop earning. Make sure you plan for an enjoyable and financially secure retirement, wherever you live.