The Lady Magazine, 25 July 2006
The idea of moving abroad when your working days are over is more popular than ever, with over a million people over pension age currently living overseas. It is something that many more of us would like to do: one survey found that over 70% of people living in the UK hope to move abroad when they retire.
Most people are attracted by a warmer climate, lower living costs and cheaper house prices. Even though parts of continental Europe have experienced increases in both the price of property and the cost of living, it is possible to make your money go further than it does in the UK.
However, the key to a successful move is in the planning -and that means more than choosing where you will live. Many people are happy to invest time in researching the kind of property they want to buy and where they want to retire to, but are less keen to do the same when it comes to their money.
Bill Blevins is managing director of Blevins Franks International independent financial advisers and tax planners specialising in advising people who move from the UK on their finances. He says one of the big mistakes people make is to assume that the tax laws in the country they are going to will be similar to those in the UK. He says that while rates of tax are often higher in continental Europe than in the UK, there are more opportunities for tax avoidance (while tax evasion is illegal, tax avoidance is not).
Others agree.
"In France, income tax is not the biggest tax," says Marjorie Mansfield, an independent financial adviser with Siddalls, based in Fareham in Hampshire. She focuses on advising on finance and investment for people who are thinking of moving to France.
Other taxes can have more of an effect on your wealth, which means you have to think about your money in a different way.
One tax that has been attracting a lot of press coverage, which applies to people who are resident in France is the "wealth tax". In France, if you own assets worth more than 750,000 euros, you have to pay an annual tax of between 0.55% and 1.8% of all the assets you own. Not surprisingly, it is very unpopular with expats, but Ms Mansfield believes that some people are worrying unnecessarily. "It can be quite a modest tax and really only affects people with assets worth more than £1.5 million. However, if you're seriously wealthy and are worth millions of pounds, it will be a big problem."
You may have tax-free investments in the UK, but that does not mean they will continue to enjoy their Tax-free status once you move abroad.
"People often think that things like ISAs and PEPs are tax-free if they move to somewhere like France," says Mr. Blevins. "But that is not the case".
It is one reason why it is better to have a long, hard look at your money and how it is invested before you move abroad, rather than waiting until you get there. "If you take out a French insurance bond before you become resident in France, you do not have to pay wealth tax on it for the first five years, as long as the asset is held outside the country," explains Mr. Blevins. So, for example, you could set up the bond in Luxemburg and avoid paying wealth tax for five years.
Inheritance (or succession) tax is another area that needs careful consideration. Many continental European countries operate on Napoleonic law, where children have automatic rights to inheritance. This means you cannot assume your husband or wife will inherit your home or other assets. If you are moving to a country with those inheritance laws, you should take advice on how you can keep control of who inherits your estate. Tax is not the only thing you need to think about. You may be receiving income from several different pensions, which raises questions about how and when they are paid. All public sector and state pensions can be paid directly to an overseas account, but with company pension schemes, it will be down to the trustees, who are in charge of it, says Ms Mansfield.
"You should check how flexible your company scheme will be. However, if it can only be paid into a UK bank account it may be no bad thing, as it means that you will have money should you go back to Britain for visits." However, the bank charges can mount up. Banks can charge between £10 and £30 a month if you have your pension paid into your account and unless you protect yourself against currency fluctuations, you will find that your monthly income rises and falls. Foreign exchange specialists, such as HIFX, offer regular payment services which let you transfer money (such as a pension or mortgage) every month free of charge. You can also minimise the risk of currency fluctuations by fixing the exchange rate (in the same way that you would with a mortgage rate) for up to two years.
Mark Bodega, Marketing Director at HIFX, says the payments are set up by HIFX through a monthly direct debit. "The plan means retirees know they will be receiving the same amount of income every month, which means they can budget and save themselves the worry of currency fluctuations eating into their pension." If you do not need to transfer money on a regular basis, it is still shopping around for your currency, especially if you need large amounts.”