It’s the time of year when people in the UK tend to start dreaming about retiring abroad. And, after a rather dismal spring, the “soggy summer” predicted by the Met Office could increase the frequency and intensity of those dreams.
Research by private bank Arbuthnot Latham has found that almost three in five wealthy people in the UK are already considering moving abroad, with the main reason being a desire to improve living standards.
Wealth managers show greater interest in Spain, France, Italy and Portugal. But pouring cold water on those dreams, they also say that retiring abroad has become more difficult.
Countries have become better at changing tax regimes and closing legal loopholes. Furthermore, the backdrop of uncertain changes in tax and legal matters, stalled by the UK general election, does not help Britons who want to move to sunnier climes.
In April 2024, the Spanish Council of Ministers agreed to eliminate the golden visa. Once ratified, Britons will no longer be able to obtain residency in Spain simply by purchasing a property worth 500,000 euros. Meanwhile, “people used to be enthusiastic about Portugal,” says Jason Porter, business development director at Blevins Franks, “but the benefits of the tax regime have disappeared for expats.”
There have always been complexities to navigate, from the practical to the tax and legal issues.
For example, you’ll be able to buy and sell investments already on UK platforms, but good luck adding or withdrawing funds without a UK bank account. You may also need to replace your Isas with offshore bonds.
One area where things are going very wrong is wills. In England and Wales we have testamentary freedom, where assets can be left to any beneficiary they wish, but in Spain, France and Portugal there are protected heir systems, where children and grandchildren receive prescribed shares.
Another well-reported problem is the ridiculous disparity whereby around 500,000 of the 1.2 million state pension recipients living abroad do not receive the increases to their state pensions guaranteed by the triple lock. While payments increase each year if you live in the European Economic Area; in others, including Canada and New Zealand, they are frozen.
Whether it’s state pensions, investments or taxes, those looking to retire abroad need to be careful: “Wherever you go, there’s always a problem,” says David Denton, consultant at wealth manager Quilter Cheviot.
In most cases, advisers say you should take 25 per cent of your pension lump sum tax-free and make other pension plans before leaving the UK. Doing so later could cost more tax-wise, plus you won’t be able to buy an annuity after you leave.
“Before Brexit it was easy to help clients in Spain and Portugal with UK pensions who had gone to live abroad. All you needed was a UK bank account,” says annuities expert William Burrows. “After Brexit, no insurance company will touch offshore annuities with a barge stick.”
The Association of British Insurers says different regulatory regimes in the countries where people choose to retire may prevent insurers from being able to offer an annuity to someone living abroad.
Unfortunately, HM Revenue & Customs advises that pension planning involving transfers to a Qualified Recognized Overseas Pension Scheme (Qrops), a common type of pension planning for expatriates, is on hold. Putting it politely, one estate manager said this is because “the legislation on abolishing the lifetime allowance was not very well drafted”. The result is that people who transfer to pensions abroad could be subject to a double tax burden.
“This is an incredibly complicated area that is in a state of flux as new legislation remains incomplete,” Porter says. “We still await further revisions to the law, but this has been complicated by the upcoming election and, if they win a majority, Labour’s proposal to reintroduce the lifetime allowance.”
Then there is the question of domicile, also suspended due to the announcement of general elections.
For decades, expats have struggled to get rid of their UK domicile, which means they are required to pay UK inheritance tax (IHT), running into what wealth advisers call “the Richard Burton problem.” ”. The actor wanted to reside in Switzerland, where he lived for 27 years and where, after dying in 1984, he was buried. At HMRC, his estate’s case was not helped by reports that the coffin was draped in the Welsh flag and that he was buried with a copy of Dylan Thomas’s poetry. But what really sealed the deal was Burtons’ purchase, many years earlier, of burial grounds in Wales. As a result, his worldwide estate became subject to UK IHT.
In March, the government announced its intention to move IHT to a residence-based system, subject to consultation, with the proposal that domicile can be vacated 10 years after leaving the UK. Nick Reeves, financial planning partner at Evelyn Partners, says: “It might be more attractive to retire abroad, depending on what the new rules are like.”
The earliest these plans could be resumed is in the autumn and it is not certain that a future Labor government will take over.
No wonder expat advisors compare their work to “playing three-dimensional chess.”
This is where financial advisors should make a living. The problem is that knowledge and experience is scarce on the ground because, since Brexit, UK advisers have had limited ability to provide services to clients in the EU.
Before Brexit, financial companies could “passport” their services to other EU countries. This ended with the UK leaving, so unless your UK adviser has taken the time, effort and expense to become established and regulated in your country of residence, you will struggle to find help.
And finding a good one abroad is very difficult. “Many offshore advisers are not qualified to UK standards and do not know how to plan your UK investments,” warns Denton.
Some UK advisory firms will refer you to overseas firms. But don’t expect to have the same experience or consumer protection – the UK is good at this compared to other countries.
And expect to pay more for advice. Navigating the changing rules and taxes in two countries is not cheap.
Furthermore, Reeves warns: “Most European advisers operate a fee model (often charging commissions upfront) which was criticized by UK regulators.” Advice under this fee structure may seem opaque and uncomfortable, but with so much uncertainty around you, you may be at more risk without it.
Moira O’Neill is a freelance money and investing writer. X: @MoiraONeill,Instagram @MoiraOnMoneyemail: moira.o’neill@ft.com