There are few dreams more appealing than retiring abroad, but there are several financial pitfalls that need to be avoided. Drawing on our years of experience helping Brits live the dream of a prosperous retirement abroad, here are Arlo Group’s top tips to ensure peace of mind and maximum comfort.
The ISA headache
Individual savings accounts (ISAs) are often the go-to option for savings, but there are multiple barriers to using them abroad. For instance, it is not possible to open or contribute to an ISA when living overseas, and in situations where an ISA is already in place the tax efficiency can be low. As such, responsible financial advisors rarely recommend ISAs for those with their eyes on sunlit horizons.
Also known as international life insurance bonds, offshore bonds are available as medium to long-term investment opportunities. Bonds can be invested with a one-off lump sum or with regular payments. Offshore bonds are particularly attractive because they can grow without being taxed. Taxation happens at the point of withdrawal, and is therefore governed by the laws of the country of residence. Offshore bonds therefore represent one of the most trustworthy long-term investments, particularly for countries like Spain, Sweden, Portugal France and Cyprus, who have beneficial tax regimes for life insurance investments.
The QROPS safety net
Qualifying Recognised Overseas Pension Scheme (QROPS) investments are often an important wrap-around for expats. QROPS enables investors to take their pension with them, usually with a tax-free transfer. Once safely nestled in a QROPS, money is sheltered from UK taxes, and no longer counts towards the lifetime pension allowance (LTA). Additional perks include flexible access, ability to invest in your local currency, ability to diversify and choose suitable investments for you, and features such as being able to control who can inherit the asset. With good financial planning, QROPS can help reduce risk and taxation in retirement.
A word of warning about QROPS
Although being unlocked from UK tax laws is a good strategy for many, it is worthwhile noting that QROPS taxation will vary depending upon the country of residency. For instance, in Portugal the taxation currently increases progressively until it reaches 48%; however, if you are a non-habitual resident in Portugal, this may be greatly reduced to 0%. In France, investors will face a 9.1% social charge levy, meaning that opting for an assurance vie is usually a more beneficial option for expats. As such, it is unwise to pursue a QROPS without consulting experienced international financial advisers.
How to guarantee the most comfortable retirement abroad
The cross-border financial world is a tangle of options, and knitting them into a comfortable future takes an experienced hand. Therefore, if you plan on retiring abroad, it is important to put time and effort into financial preparedness. Ideally, start planning as soon as possible, and involve a trusted financial advisor from an early stage. Often, proactive strategies will keep money both agile and protected so that funds are optimised.
The expat life is an enviable one, so don’t let financial headaches ruin the experience. For more information about securing the future of you and your family, and for more top tips, give one of our advisers a call today.