Everything you need to know about retiring abroad

Four in the afternoon and it’s already dark. Outside it’s three degrees and raining, and the fourth cup of tea of the day is failing to work its magic. If you have ever considered leaving the UK for sunnier climes, this is the season when the temptation is strongest.

For those of us who are still working, moving abroad can be tricky. But if you are retired, you have the option to do so more easily, either on a part-time basis or more permanently.

However, there is still a lot to consider from a financial and administrative perspective, and it may prove more complicated and less tax advantageous than you might expect.

A visa problem

One of the first things to do is check whether you can obtain legal permission to live in your country of choice. “A lot of people are very naive and think they can live in lots of places,” says David Denton, technical consultant at Quilter Cheviot. “The reality is they can’t, especially post Brexit.”

UK nationals are no longer entitled to live in a European country. You can travel there as a tourist and spend up to 90 days in a rolling 180-day period in the European Union (EU); for anything more than that, you need a visa.

If you are retired, you may qualify for a non-working visa that allows you to live in your country of choice, as long as you can prove that you have the financial means to support yourself. For example, for Portugal’s “passive income” visa and residency permit, you need a minimum income of €9,840 (£8,152) for a single person and €14,760 for a couple in 2024. You must also have sufficient financial resources, which translates into keeping about €20,000 in cash at a Portuguese bank (or €30,000 for a couple). However, the specific rules and income requirements are different for each country.

The process to obtain the visa can take time, so you should start early and be prepared for paperwork and charges. In most cases, you will need to renew the visa periodically.

Buying property

Many countries are cheaper than the UK to buy property, making them attractive, either for your main residence or as a second home. Alexandra Loydon, private client director at St James’s Place, says that weather is not the only reason why people want to relocate. “Over the past couple of years, the cost of living has driven a lot of people to consider retiring abroad. This extends to the cost of property,” she says.

However, buying a property abroad is complicated, and you may not be familiar with the system and language. We have a more detailed guide to buying and selling property abroad after Brexit here. But broadly speaking, expect bureaucracy, even if you are buying in the European Union, and of course there are always local taxes to pay. Additionally, while buying with cash will be relatively straightforward, it is more complicated if you need a mortgage.

Buying a home does not give you the right to spend as much time in the country as you please. In the EU, the 90-day rule might still apply unless you also obtain a visa. In France, a proposal to grant UK citizens who own a second home permission to stay for six months a year was scrapped at the beginning of 2024.

However, it is easier in some countries. In Spain, for example, investing £500,000 in real estate can give you access to a “golden visa” that comes with the right to live and work there. Portugal used to have a similar programme, but as of October 2023, real estate was no longer a qualifying investment.

Planning your finances

Moving abroad has financial planning implications, starting from simple matters such as opening a bank account. This is often a necessary step if you want to apply for a visa; and either way, continuing to use your UK bank account abroad is rarely a long-term option, and can expose you to high foreign exchange and transaction fees. 

There are plenty of other factors to consider too. Most people will continue to receive their pension in the UK, and you are still entitled to the state pension if you move abroad. But whether your state pension increases every year in line with the ‘triple lock’ depends on where you go, says Robert Salter, director at Blick Rothenberg.

“People who retire to the EU, for example, will be fine and will continue to benefit from inflation-linked state pension increases,” he explains. “However, those who retire, say, to South Africa, the United Arab Emirates or Australia will in effect have their state pension ‘frozen’. That is, it continues to get paid to them, but at the amount which applied when they left the UK.”

Receiving your pension in pounds and spending it in another currency is not an ideal set-up, as the mismatch leaves you exposed to currency exchange fluctuations.

You theoretically have the option to transfer your pension to a ‘qualifying recognised overseas pension scheme’ (QROPS), so that it is in the same country and currency where you live. However, Denton says that over the years, the UK government has made transferring your pension abroad increasingly complicated and uneconomical, as these schemes were considered a way to dodge domestic taxes.

Following the latest Autumn Budget, even if you move to the EU, you can only transfer your pension to a scheme based in the same country you reside, without facing tax complications. But most QROPS for UK residents moving to the EU are based in Malta – so in practice, at the moment transferring your pension is no longer an option for most people looking to retire in other EU countries.

Double taxes

You will also need to work out how much tax you will owe on your pension income once you move, which is crucial to assess the kind of lifestyle you can afford. This is a huge question mark that depends on the kind of pension you have, the country you are moving to and the proportion of the year you spend there.

“What you often see is people who, in effect, commute,” says Salter. “They spend the winter in southern Spain and the summer back in the UK, for example.”

If you spend most or part of your year abroad, you might be liable to pay income tax (and other taxes) either in the UK, in the country where you move to, or both. Working out what applies is no easy feat and you will typically need to submit a tax return in both countries. Different countries have different rules on who qualifies as a tax resident and what it entails. They even have different tax years, for example, running from January to December rather than starting in April as in the UK.

If you do end up being a tax resident in more than one country, the UK has double tax treaties that protect you from paying twice. But depending on your circumstances, it can make sense to take advice to understand exactly what tax you can expect to pay, and what documents you need to submit to minimise the impact.

For example, if you are not a UK tax resident but receive a UK pension, your pension fund is likely to pay out the pension net every month. But typically your tax liability on that income will actually be in the country where you reside. So you will have to claim the UK tax you paid on the pension back from HMRC, and pay tax in your country of residence instead.

While there are countries where you can move to and benefit from tax advantages, putting tax first is hardly ever a good idea. “The one thing I always say to people is, let’s start with your lifestyle choices rather than your tax choices,” says Rachel de Souza, tax partner at RSM. “At the end of the day, you have to live in the country you’re choosing, and if you’re only going there for tax reasons and you don’t like it, you won’t last there very long.”

If your retirement plan involves withdrawing from different pots of money and investments, you may have to rethink it, or at least expect to pay higher taxes. Denton warns that tax-free accounts that are routinely used in the UK, such as individual savings accounts (Isas) and Premium Bonds, “are not tax-free anywhere else” – so if you live in another country, you could owe capital gains tax (CGT) on the gains you make within your Isa, for example. You may also lose your entitlement to your pension’s 25 per cent tax-free lump sum.

Healthcare, and more

It is not just about your finances. Retirees, in many cases, are moving away from families and support networks, and Loydon stresses the importance of investigating your healthcare options before moving. This is even more relevant if you already have a long-term condition. You may need health insurance, which can be a significant cost.

Not all countries have the equivalent of the NHS, or will make it available to you. If you receive the state pension, you may be eligible for an S1 form, a document that allows people who have paid social security contributions in the UK to access healthcare services in an EU country. But if you don’t qualify, or are moving to a non-EU country, you are on your own; and even if you do, you may still need health insurance. 

Finally, you should also plan for what happens if you die while abroad. “In England and Wales, we’re very unusual. We have a concept called testamentary freedom. We all take it for granted,” Denton says. “Testamentary freedom is your ability to write a will and completely choose who will benefit from your wealth when you pass away. That system hardly operates anywhere else in the world.”

Other countries have so-called “forced heirship” rules, which typically establish that a certain portion of your assets has to go to your surviving spouse and children, for example. So if you permanently move abroad, you may need to change your will. Similarly, if you have a power of attorney in the UK, it won’t necessarily apply in another country and you might need to do something equivalent there.