According to the Centre for Future Studies, 1 in 8 Britons rapidly approaching retirement has a keen interest in retiring abroad – and our own findings go hand in hand with this information. Despite the global economic squeeze and the particular impact this has had on Britons’ aspirations when it comes to living abroad, the desire to relocate is still strong.
If you’re hoping that your finances will take you overseas in retirement and provide you with an exceptional quality of life, and you’re actively researching and planning your move, there are 3 important considerations for Brits retiring abroad that we would like to draw your attention to today.
Country based research, property searches and even looking at affordability in terms of daily living costs etc., are all commonly undertaken by anyone thinking about retiring abroad…but the following 3 considerations are sometimes overlooked. Because Expatra is all about information sharing and the dissemination of helpful facts, please allow us to highlight the following important issues for your consideration…
1) Understand the Differences Between Residency and Domicile and the Tax Impact of Changing Either
Your country of residence is where you ordinarily live for the majority of time. Therefore, you can easily see that if you move to live abroad permanently you can change your country of residence with relative speed and simplicity.
See our article entitled ‘When Does an Expatriate Become Non-Resident for UK Tax Purposes?’ for more information, and catch up on the latest residency rules in the UK here.
A person’s country of residence has an impact on the amount of income tax they pay for example and to whom – with those British retirees who become resident abroad in a low tax nation thereby potentially benefitting from paying less tax on their pension for example. E.g., Britons who become tax resident in Cyprus and who qualify can find they only have to pay a flat tax of 5% on their pension income.
Your country of domicile is determined as the nation you’re born in and live in as a child, and/or the nation your father was born in. Rules are a little wishy washy, but you can read as comprehensive an overview as possible in our article entitled ‘Tax Planning and Understanding Your Tax Status.’
Unlike residency, you cannot change your country of domicile simply by taking up full time residence in another country…even if you retire to that nation and live therein for 30 years for example. And unlike residency your country of domicile is not really important …until you die! Your country of domicile is extremely important to the British taxman when you finally shuffle off this mortal coil, because anyone deemed domiciled in the UK will have their worldwide assets and affairs scrutinised for inheritance tax purposes by the British taxman.
So, where you read about a nation and you see that it levies no inheritance tax, you need to know that this is unlikely to be of relevance to your situation if you retire to that nation. This is because by moving to that country you do not become domiciled in that country.
You can shake off your country of domicile and change it to another one of your choosing – but to do so is extremely tricky. There is no fixed set of rules to apply – but the bottom line is you have to sever all ties with the UK, sell all assets, close all accounts, remove all family (!), never return for any length of time – and then make it clear that you want to acquire domicile in your new nation.
Expert advice needs to be taken to ensure you take the right steps, and that taking them is advantageous for you on all levels. And you MUST have a will covering all international assets which is legally recognised in any nations where you have interests.
The bottom line is you need to understand the rules of residency and domicile and how they can and will impact your tax status, today, tomorrow and even after your death.
2) A State Healthcare System Does Not Always Guarantee Free Treatment
As a Briton going to live abroad in retirement within the EU or European Economic Area you may be eligible for free state healthcare, depending on when you retire and the healthcare offerings in a given nation. However, even where there is free state medical care abroad, that does not necessarily mean you will always receive the treatment you need for nothing.
Most nations operate at least a two tier system – if not a multi tiered system – where only certain treatments and levels of care are free. Anything and everything else will have to be self-funded. In the UK for example, even under the NHS we have to pay for prescriptions (in England), for basic dental check-ups and for eye appointments too…
In other nations emergency care may be free, but a consultation with a consultant may need to be funded. In such situations local citizens usually have health insurance for any supplementary care they could need…but foreign retirees may not be able to access insurance – and where they can access it, it may become too expensive over the years.
You owe it to your long-term health and wellbeing to understand the healthcare system in your new nation before you retire to it, and you have to ensure you can afford treatment/insurance in the event that you ever need care.
Do not take risks – do your research on this key subject matter before you go.
3) Don’t Cut Ties or Close Doors – and Have a Plan for Strategic Withdrawal!
Whilst you may currently be determined to sell up, ship out and never return to the UK, plans can change! As an older person you never know what issues could potentially spring up further down the line as you settle in to retirement abroad. For example, ill health could impact your plan.
Other retirees have been forced to re-evaluate their life abroad because of the unexpected arrival of grandchildren on the scene ‘back home,’ the need to help family out in the UK, because of the loss of a loved one, or because the situation in their new nation changes for the worst.
Therefore it is critical that you don’t cut all ties with your old home nation, and you don’t slam the door when you leave by telling friends, family and neighbours what you always secretly thought of them! Note: if you want to change your nation of domicile, this information probably doesn’t apply!
It may make sense to retain a bank account in the UK too, so that you don’t have to establish your credit rating from scratch if you return…and those who are not 100% committed to remaining abroad forever may wish to think about renting out their house in the UK rather than selling it, and renting abroad instead of buying.
Other considerations to keep in mind in the event you may one day wish to exit your new life abroad in favour of a return home include having money in the bank to help you relocate.
Basically keep in mind the fact that your move abroad in retirement may not be permanent, so that if you ever do decide to move back the relocation won’t be so much of a wrench.