Choosing to retire to a European country is a dream for many. The pitfalls around making such a move, however, can turn this dream into a nightmare.
Here are 10 things advisers need to be aware of when helping clients plan their European retirement.
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Tax efficiency
Consider cashing in tax-efficient investments before leaving the UK. Individual Savings Accounts, venture capital trusts, enterprise investment schemes and premium bonds, among others, do not have tax-efficient status in other countries, so you would be taxable on any income or gains that arise in your new country.
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Offshore bonds
Unit-linked single premium life assurance policies are relatively tax-efficient in the UK. Local variations are also used across Europe, with a variety of benefits in terms of tax deferral, reduced income tax liabilities, inheritance tax and wealth tax savings. But often UK-compliant products do not qualify as such outside the UK.
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Bond tax relief
Time apportionment relief for the non-resident period of ownership of an offshore bond can help eliminate tax on an offshore bond if it is encashed after returning to the UK.
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The main home
Most other European nations have some form of tax relief around selling a main home. However, be aware that this relief can be lost entirely. If the old UK main home is sold outside of a certain timeframe or the whole of the proceeds received from the sale are not reinvested in a new main home then this relief will be lost. It is often more beneficial to remain UK-resident until the UK main home has been sold.
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Double tax treaties
In most double tax treaties, the UK cannot tax a company, private or state pension if you leave the UK. This passes to the jurisdiction where you take up residence. But UK government pensions almost always remain taxable in the UK.
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The lump sum
It is likely to be beneficial to take the pension commencement lump sum (PCLS) prior to leaving the UK. The 25% tax-free portion is not replicated in other jurisdictions so this benefit should not be wasted.
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Delay taking other benefits
Take advice on your pension options before retiring overseas. The options that are available in your new jurisdiction could mean it is beneficial to delay taking benefits until after you have left the country.
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Pension freedoms
In addition, if you move overseas, the UK’s pension freedoms could open up further options in crystallising your pension fund very tax efficiently.
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Qrops
A Qrops could be beneficial if moving to certain EU states. The UK has introduced a 25% exit tax where the individual or the Qrop is outside the EU. It is uncertain whether the UK will extend this to Europe when it leaves the EU.
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Exit tax
Several European nations have introduced an exit tax on the value of stocks and shares held when you cease tax residence. Consider utilising a wrapper such as an offshore bond in order to eliminate this possibility.
Summary
Each EU country comes with its own set of rules and regulations that can be a potential minefield for financial advisers. One wrong step can end in disaster for clients. However, careful planning by a knowledgeable adviser can help make a retirement dream a reality.
Further reading:
Top tips for retiring to Portugal
By Jason Porter, business development director, Blevins Franks
