Beware the whirlpools of overseas retirement

British pensioners love to settle abroad. But the financial rules vary depending on where you go. Simon Hildrey reports

Be it to the Rockies or Rhodes, Paris or the Pyrenees, nearly half of us want to retire overseas. The dream of heading abroad for good after a lifetime of work is now held by 45 per cent of us, according to research from the insurer Prudential.

Be it to the Rockies or Rhodes, Paris or the Pyrenees, nearly half of us want to retire overseas. The dream of heading abroad for good after a lifetime of work is now held by 45 per cent of us, according to research from the insurer Prudential.

Some 2.3 million people aged over 50 plan to emigrate within the next 10 years, says Alliance & Leicester International bank - many of them to Australia, the most popular destination for UK pensioners.

The latest figures from the Department for Work and Pensions show that 231,000 retirees have moved Down Under, Our second-favourite destination is Canada (146,000), followed by the US (118,000), Ireland (92,000) and Spain (54,000).

Beyond the dream, however, lies a financial reality that demands a great deal of planning to make sure such a life-changing event goes smoothly.

The impact of retiring abroad on your finances will vary between countries. For example, while you can receive your state pension overseas, it will not be increased in certain areas in line with changes in the UK. Some 500,000 pensioners have had their pensions frozen at the level paid out when they first left the UK for countries such as Australia, New Zealand, Canada and South Africa.

Personal and company pensions will still be liable for tax even after you have left the country. In most cases, once you have informed the Inland Revenue of your overseas residency, pensions will be paid gross to you and then taxed in your new country. However, some pro-viders only pay pensions into a UK bank, warns James Hender at the financial services group Smith & Williamson. In this scenario, you could lose if the value of sterling falls against that of your chosen country.

You'll also have to balance the amount of time spent in your new home and the UK for tax purposes, Mr Hender says.

Income tax has to be paid in Britain, as in many other countries, if you spend 183 days or more here during a tax year. In the UK, you will also be caught in the tax net if your visits average 91 days or more every year over a maximum of four years. All this could leave you liable for tax in both Britain and your new home.

In such cases, you'll need to know if your new home country has a "double taxation" agreement with the UK which means your income won't be hit twice; most popular retirement countries, such as Canada and France, do.

In most cases, you don't have to pay tax on interest earned from bank and building society accounts in the UK. However, you will be taxed on dividends from UK-based companies, interest from UK gilts and any property you rent out.

Some countries impose a "wealth tax" of 1 to 2 per cent on your assets. "If you keep a home in Surrey worth £1m, you could pay £20,000 a year tax on this," says Mr Hender.

You may not escape the clutches of the Inland Revenue even if you die abroad - it depends on your "domicile".

You could be non-resident but still UK domiciled, which means your estate will be liable for inheritance tax in the UK.

Your domicile is usually decided by where your father was born, although it is possible to abandon a domicile of origin and acquire a new one.

However, this is difficult and requires evidence of cutting ties, such as buying a home, taking up citizenship as well as employment, or starting a business.

In the event, you may need to make two wills - one for your UK assets and another for assets in your new country.

This is important because some countries, such as France and Spain, have forced heirship.

In Spain, for example, you are obliged by law to leave at least two-thirds of your property to your children when you die. This can cause problems if you have children from previous marriages.

Independent Partners: 10 top tips for retirement. Get your free guide here

Suggested Topics
News
people
Sport
FootballGerman sparks three goals in four minutes at favourite No 10 role
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Sport
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
athletics
PROMOTED VIDEO
Sport
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
music
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam