Understand and manage the financial impact on your pension and assets.
In the following article, we look at some of the things you'll need to consider such as pensions, investments and inheritance tax when you retire overseas.
You may be able to receive your state pension in many countries around the world. This could be paid directly into your international account.
Financial implications of retiring abroad
Every country has different legislation that will affect your finances accordingly. These are some of the important questions you should ask yourself now:
- How will my residence position be determined for tax purposes?
- How will my pension be affected by my move?
- How will my existing assets and investments be affected by the tax regime of the country I'm moving to?
- How will the succession law of my destination country affect my estate and the inheritance tax I'll need to pay?
- What is the best overseas bank account for me?
Tax Residence
New legislation is proposed by the Government which will take effect from 6 April 2012. Consultations are in progress so full details are not yet available. You should seek advice from a competent professional tax specialist.
Looking after your existing pension
It's important to consider that once you've left the UK, you are unlikely to be able to make any more significant contributions. Contributions of up to £3,600 can continue with tax relief for up to five years and contributions could also continue if the individual were to still have UK Relevant Earnings.
Your existing pension funds will be 'frozen' and will rely on investment performance to potentially boost the fund.
You could choose to transfer your UK pension funds into a Qualifying Recognised Overseas Pension Scheme (QROPS). However, this may have adverse tax consequence and we would advise that you seek advice from a competent professional pension specialist.
It's a good idea to open an international bank account before you move. You can receive your state pension anywhere in the world and this can then be paid directly into your international account. If you receive income from a private pension, its best to check whether the scheme will pay into an overseas bank account and to find out if you'll incur any fees for this.
To check your entitlements in your destination country, and get a State Pension forecast, have a look at form BR19 from the Department for Work and Pensions [PDF].
Managing your assets and investments
In addition to managing your pension, forward planning of your investments will also help ensure you have a sufficient retirement income overseas. If you're thinking of retiring abroad over the next five years, it may be appropriate to start moving some of your savings and assets now. By periodically moving your assets, you could minimise your currency risk, although it's important to remember that some currencies can be more volatile than others. It also may be beneficial to start switching your investments to offshore funds to minimise your tax liability. Several providers offer collective investment funds offshore, making it easier for you to reorganise your portfolio to meet your changing needs. Before taking such action, you should take advice on the tax implications in the UK and the country you are going to.
Protecting your estate
National laws that govern estate and inheritance tax vary from country to country. Generally, you'll have to pay inheritance tax in the country your assets are situated, according to the legislation of that country. You are also likely to pay inheritance tax in the country which is your permanent home at the time of your death.
If you're domiciled abroad, UK inheritance tax applies only to your UK assets. However, you don't have to pay tax on certain UK assets. This includes British government securities, FOTRA (Free of Tax to Residents Abroad) securities and excluded property settlements created by someone who is not domiciled in the UK.
For a full list and more information about excluded property, visit the HMRC website.
Navigate your way around
Whatever country you're looking to retire to, it's easy to tap into our wealth of international expertise online:
HSBC International Banking Centre
Closer to the time when you'd like to retire abroad, our International Banking Centre can give you guidance and assistance. We can help you open an overseas bank account in over 45 countries before you leave the UK, so your accounts are set up for you when you get there. In addition, we'll transfer your HSBC credit history, review your international banking needs to make sure they're covered and arrange finance if you need to purchase a property overseas. Find out more about our international services.
The value of investments and any income from them can fall as well as rise,
meaning you might get back less than you put in. This may also happen as a
result of currency fluctuations where overseas securities are held.
Investing should be seen as a medium to long term proposition, for example
at least 5 years.
When investing in a pension you cannot usually access the
money until you take your retirement benefits.
The value of tax treatment
will depend on your individual circumstances and may be subject to change
in the future'.
