Don't turn your overseas dream into a nightmare

Growing numbers of people in Britain plan to move abroad, but the financial implications need to be looked at thoroughly. Chiara Cavaglieri reports

Almost half of the UK working population is considering moving overseas to escape the recession, according to a new survey. Research by foreign exchange specialists Travelex has found that 45 per cent of working adults want to relocate, looking for a better quality of life and better job prospects overseas.

More than half of Brits would consider moving abroad if they were made redundant, and for 27 per cent of the UK working population, the new highest tax band of 50 per cent for those earning more than £150,000 has sent them fleeing for countries with lower tax levels.

A life in the sun is enough of an incentive for many people, but does it add up to big savings? Australia has always been a firm favourite for expats and is currently the number one emigration hot spot with 42 per cent making it their top choice. Other favourites included the US, New Zealand, Canada and Spain. Michael, 34, a banker earning more than £150,000, lives in south London but is contemplating a permanent move to Australia to avoid the 50 per cent tax rate. "Jobs are still available in Australia," he says. "I have experience of living there and the standard of living is very different. You've got the sunshine and houses are cheaper. It starts to become quite a compelling argument." If he does decide to take the plunge, Michael wants to return to either Sydney or Melbourne and plans to rent his UK home until property prices have picked up. "There's so much research to do before making that jump. I would recommend getting everything lined up before you go and decide where you want to live and work," he adds.

And on a purely tax basis, there are some favourable alternatives for the UK's top earners as well as the rest of us. In Australia, those who earn more than $180,000 (£88,681) are taxed at 45 per cent; in Canada earnings over $126,264 (£70,772) are taxed at only 29 per cent, and in the US workers pay just 35 per cent on earnings over a huge $372,950 (£238,395).

But transferring assets, arranging a mortgage, applying for visas, obligatory medical costs and flights will cost thousands of pounds, so in-depth research is vital if you're planning a big move.

With the exchange rate against the pound in a sorry state, it may make more financial sense to leave money in the UK and only take what is needed for day-to-day expenditure. Then, at a later date, more appealing exchange rates can be fixed using a forward contract. Specialist currency brokers are more likely to secure the best rates and tend to have lower transfer charges than banks. "It's important to understand how exposed the value of your money is if you're going to make regular payments abroad. You could protect against fluctuating exchange rates by taking a one-year, forward contract which fixes the rate," says Tony Wilson, UK director of Travelex. Set up a bank account abroad as early as possible and send a test payment to the new bank before transferring large sums of money, preferably before you leave the UK.

But there are often other unexpected costs to take into account such as banking and healthcare. In some countries, including Australia, it is standard to pay for a bank account, which may be an issue for those used to free banking here in the UK. Medical and health insurance can be another sticking point as in many countries expats will need to buy local insurance to cover for medical costs.

Pensions are another consideration. "In general, it should be relatively straightforward to transfer your UK pension, as long as the pension regime is broadly similar," says Simon Webster, managing director of chartered financial planners Facts & Figures. As long as the pension scheme is recognised by HM Revenue and Customs as a qualifying recognised overseas pension scheme, the transfer can be processed in the same way that it would be in the UK.

There may even be benefits to transferring a pension to another country. In Australia, for example, there is no tax payable on the income drawn from a pension fund. And you can take up to 100 per cent as a lump sum without having to buy an annuity. But the situation varies from one country to the next. Britons who have already reached the state pension age will continue to receive payments, but if moving to a Commonwealth country such as Australia, Canada and South Africa, instead of increasing in line with inflation the pension will be frozen at the level reached when they left the UK. Expats claiming for winter fuel allowance in the UK are still entitled to the benefit when they move, as long as they are moving to a European Economic Area country.

How much time a retiree spends abroad will also have a big impact; those who spend more than 183 days at any one time, or 91 days a year over four years in Britain, will have to pay UK taxes. "If you're retiring and thinking about buying property you would do well to understand the tax implications. If you're living in both countries you need to find what will alter your tax status," says Christopher Wicks, director of advisers N-Trust . Retirees moving abroad should also check whether their current pension scheme will pay into an overseas bank account and whether their annuity company will transfer money overseas free of charge.

And then there's the question of coming back. In South Africa, for example, there are exchange controls on those leaving the country: anyone emigrating may face difficulties taking all their money with them should they decide to return to the UK. Other factors for returning Brits will be exchange rates and the fact that the cost of living and the property market could be considerably different upon their return. There is the risk, experts warn, that the cost of returning to the UK could make it almost impossible to do so.

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