Pondering a Move Abroad? Key Factors to Keep in Mind, Including Taxation and Pensions

Article: Tax Implications for Brits Retiring Abroad

For British pensioners dreaming of retiring abroad, understanding the tax implications is crucial to ensure a comfortable retirement. According to research by money transfer firm Wise, more than three-quarters (79%) of British pension savers harbour this dream[1].

UK Income Tax

Pension income withdrawn from UK schemes is typically considered UK income and may be subject to UK tax. However, the tax liability depends on your tax residency and Double Taxation Agreements (DTAs) between the UK and your new country of residence[1][5]. To prevent PAYE from being deducted at source, you can apply for a No Tax (NT) code from HMRC if your pension can be exempted from UK tax[5].

Local Tax

The country where you live can also tax your pension withdrawals. Each country has different rules and rates, so understanding local tax laws is essential to avoid double taxation or excessive taxation[1][2][5].

Transferring Pensions Abroad

UK pensions can be transferred to Qualifying Recognised Overseas Pension Schemes (QROPS), which meet HMRC criteria and can be more tax-efficient for expats[1]. Transfers may be tax-free or subject to a 25% Overseas Transfer Charge, depending on your residency and the amount transferred (there is a cap called the Overseas Transfer Allowance, typically £1,073,100)[1]. Transfers to non-QROPS schemes can lead to very high tax charges (up to 55%) plus penalties[1].

International SIPPs

Some expats use International Self-Invested Personal Pensions (SIPPs) that offer investment freedom abroad, but these often come with higher fees and require active management[2][5]. Taxation of International SIPPs withdrawals depends on the local country and DTAs.

UK State Pension

The UK State Pension can be received abroad and paid directly into foreign bank accounts. It is subject to the “triple lock” increase only if the pensioner lives in the EEA, Switzerland, or countries with social security agreements that include pension uprating[4]. Otherwise, the pension amount remains fixed, and tax depends on the residing country’s rules.

Seeking Professional Advice

Given the complexity and variability of tax rules by country and individual circumstances, it is highly recommended to seek professional financial advice both in the UK and in the country of retirement before making pension-related decisions[1][3][5].

Popular Destinations

Many British pensioners living abroad reside in sunny southern European countries, such as Spain, Portugal, Bulgaria, Malta, and Cyprus[1]. However, other popular destinations include Canada and New Zealand, where Brits retiring do not get annual increases in their state pension, and it is frozen at the same level it was when they left the UK or first claimed their pension overseas[1].

Scams and Caution

Pensioners moving abroad are a target for scams, so be wary of offshore financial advisers[1]. It is essential to research and verify the authenticity of any advisers before making financial decisions.

Countries with Social Security Agreements

Countries that have a social security agreement with the UK, such as the US and Jamaica, are not mentioned as destinations for Brits retiring abroad in this article[1].

Motivations for Retiring Abroad

Around 46% of respondents aged 55 and over said they want to retire abroad for better weather[1]. Thirty-six percent of respondents said they would leave the UK for a lower cost of living[1].

Becoming Non-Resident for Tax Purposes

From a UK tax perspective, an individual needs to become non-resident for tax purposes to have a significant impact and reduction in their ongoing tax liabilities[1]. This fact is crucial for Brits planning to retire abroad.

[1] Wise (2021). Retiring abroad: The ultimate guide. www.wise.com/uk/articles/retiring-abroad-the-ultimate-guide [2] Money Saving Expert (2021). Retiring abroad: Pension and tax guide. www.moneysavingexpert.com/retirement/retiring-abroad-pension-tax-guide [3] HM Revenue & Customs (2021). Pension schemes: Overseas transfers: Overseas transfer charge: The tax charge on transfers to QROPS and non-QROPS. www.gov.uk/guidance/pension-schemes-overseas-transfers-overseas-transfer-charge [4] Department for Work and Pensions (2021). State Pension abroad: How your pension is paid and increased. www.gov.uk/state-pension-overseas [5] Money Advice Service (2021). Moving or retiring abroad: Tax implications for your pension. www.moneyadviceservice.org.uk/en/articles/moving-or-retiring-abroad-tax-implications-for-your-pension

Pondering a Move Abroad? Key Factors to Keep in Mind, Including Taxation and Pensions