Moving abroad: things to consider
Many Brits want to retire abroad – drawn by the weather, the lower cost of living and cheaper property.
It’s a winning combination and one that has tempted over a million pensioners already.
However, retiring abroad requires more than an extensive wardrobe of shorts and advanced sun lounging skills: it also takes careful financial planning around eight key areas.
To give you an idea of the costs involved, we've used data from home interiors specialist Hillarys. Their moving abroad online tool can estimate the cost of moving to and living in a range of foreign countries.
While the rest of this article looks at moving your pension overbroad, you can learn about other areas of retirement with our comprehensive guide to pensions.
The cost of moving might be a one-off, but it shouldn't be underestimated.
The cost of removals is, unsurprisingly, related to how far you're moving.
Nearby destinations are cheapest, such as France (£597 on average, according to Hillarys) and Spain (£612), with slightly higher costs for Italy (£1047).
If you're retiring to the USA or Australia, be prepared to pay far more: £1,294 on average for the former and £2,047 for the latter. Keep in mind that moving abroad means shipping your possessions, which means weeks or even months as well as customs paperwork.
In the past, it went without saying that you should be able to save money by living overseas.
However, in recent years, falls in sterling and rising costs in some countries have changed the picture somewhat.
You can still save money when retiring to the likes of Spain and Portugal, where you can spend less on everything from food and drink to eating out and taxation. A three-course meal for two at a mid-range restaurant costs £33.25 in Spain and just £29.74 in Portugal, according to Hillarys, whilst both countries are cheaper for groceries and utilities bills.
Elsewhere, however, prices have risen closer to those in the UK – including Cyprus and France, where the average groceries bill, at £52.49, is higher than the USA (£46.75) or Australia (£40.41). In some places, life is even pricier - including New Zealand and Canada.
It’s therefore important to spend some time in the country you are considering and look carefully at what you get for your money.
It’s also worth calculating the effect of possible currency movements - to be sure you can afford the lifestyle you want if the exchange rate moves against you (you can compare exchange rates from different providers here).
Finally, bear in mind the living costs you don’t face in the UK, such as air conditioning in the summer or running a swimming pool.
If your home is part of a development, there are likely to be fees to pay for the maintenance of communal areas, so check these too.
Need inspiration? Here are 13 low-cost destinations that you might not have considered.
One of the major attractions of retiring overseas is the fact that in so many parts of the world you will pay less for property than in the UK.
Rental costs are relatively cheap in Portugal, Spain and Italy and more expensive in Australia and the USA.
If you're buying property, bear in mind that property purchase works very differently around the world, so you need to be careful.
Before you buy, take the time to find a good, local, independent, bilingual lawyer with no ties to the vendor.
Lawyers perform different functions in different countries, so don’t assume they will do all the necessary background checks: you may need to look into whether there was permission to build on the land and that you have a right to access, before you commit.
You should also get to grips with any rules regarding how a property is dealt with after your death in the country of your choice, and factor this into your estate planning.
Before you go, you must inform the International Pensions Centre of your plans.
You are still entitled to the state pension – which can be paid into your account in the local currency - but it only benefits from annual increases through the triple lock, if you live in the European Economic Area, Gibraltar, Switzerland or a country with a social security agreement with the UK.
It means that if you were to retire to the US, Canada, New Zealand or Australia, for example, your income would be frozen at the rate when you left the UK. If you receive pension credit, this will stop as soon as you leave the UK.
Your workplace or personal pension can also be paid to you overseas – although you may be charged extra for this.
Remember that you will be paid in pounds sterling, which will then be translated into your local currency. It means you will be subject to fluctuations in the exchange rate.
It may, therefore, be worth setting your exchange rate up to a year in advance, using a currency specialist, so you have some certainty over your income in the short term. You can look at loveMONEY’s forex comparison site to find the best rate.
Alternatively, you can transfer your pension away from the UK, so you can convert the whole pot to your new local currency.
This will give you more control, but won’t be right for everyone, and could leave some people much worse off, so make sure you take advice from a trusted, regulated UK firm if you are planning a transfer.
You are taxed based on your tax residency, which may be different from where you spend most of your time.
If you are to sever ties with the UK and become tax resident in your new home country, you will be subject to their tax rules, so you may pay more or less tax depending upon where you go. It’s therefore important to check the differences.
You may also still be subject to UK tax as well. However double taxation agreements with many countries usually mean you are only taxed once and not twice.
You will need to check the arrangements in place for the country you are moving to.
You must tell HMRC that you are moving. You also need to understand the tax rules affecting you. If, for example, you have a cash ISA, it will remain tax-free in the UK, but you will need to check whether it is taxable in your new home.
Countries may well have their own local equivalent tax-efficient savings schemes you can use as an alternative.
Capital gains tax is also a consideration. In the UK, when you sell your main residence you don’t pay capital gains tax, and while this is the same in some destinations, in others there will be a threshold above which there may be tax to pay.
Finally, check the inheritance rules and applicable tax. In France, for example, you cannot just leave everything to your spouse, because children automatically have a claim on your estate.
It’s therefore important to be aware of the rules and write your will accordingly.
Healthcare provision abroad varies dramatically.
Some places, like Canada, have excellent full state cover, much like the NHS.
In the US, by contrast, comprehensive health insurance is essential.
Elsewhere there is good state provision, including in the likes of France and Spain, but it only covers around two-thirds of the cost of care, so you’ll need top-up insurance.
If you are not a citizen of the country you are moving to, the type of residency visa you hold may affect your access to free state healthcare.
It’s also worth weighing up what you will do if you require long-term care when you get older.
You can return to the UK, but you may not be entitled to any help. You will have to prove you intend to settle permanently back in the UK before you will be assessed to see whether you can receive state care.
If you stay overseas, meanwhile, there are no reciprocal arrangements with the UK covering care, so you’re on your own.
You may also struggle to find the kind of care you want – particularly if you are looking for a care home where English is spoken.
At the moment it’s not known how the situation for expats in already living in Europe will be impacted by Brexit – neither do we know what it means for those who plan to retire overseas after Brexit.
There are all sorts of issues to be ironed out, including freedom of movement, state pensions (although progress has been made), tax and healthcare.
In the short term, it may be enough to encourage would-be expats to put their overseas retirement plans on hold until they have a better idea of the deals that are done to secure the position of expat pensioners.
In the meantime, you can be sure that the British drizzle, expensive cost of living and pricey property will continue to drive the demand for retirement in the sun – regardless of how Brexit pans out.
Sarah Coles is a personal finance analyst at Hargreaves Lansdown. The views expressed in this article do not necessarily represent those of loveMONEY.