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05 Aug 2015

Tax-free pensions for those looking to retire abroad

City Wire recently reported on the news that the number of UK citizens choosing to retire abroad is likely to increase over the coming months, partly as a result of the new pensions freedoms announced earlier this year.

The new pension rules have had an unexpected advantage for British retirees looking to spend their later years in sunnier climes. One of the most appealing countries to retire in is currently Portugal, thanks to its ‘non-habitual residence regime´ (NHR) - a promise that foreigners won´t have to pay tax on any non-Portugese income for ten years.

James Porter, an expert from expat advice firm Blevin Franks, explains that although this option has been available for six years, it will be more popular now that retirees can access their pension pots whenever they wish, allowing them to live off their savings for a decade tax-free.

According to government figures, there are currently some 39,000 UK expats living in Portugal, which is very little compared to the one million in Spain. However, Porter warns those considering Spain that the Spanish government has imposed a severe wealth tax of 2.5% on global assets.

France, another popular retirement destination, also has wealth taxes similar to the mansion tax in the UK, but that also levy furniture, jewellery and cash. The charges start at 0.5% for those with €800,000 to €1.3 million, but can reach as much as 1.5%.

Of course, one advantage of living in either France or Spain is that families are taxed, as opposed to individuals - meaning that allowances and tax burdens can be shared between a husband and wife, for example.

Porter predicts that we could be on the brink of a pensioner exodus as more people realise the financial savings that can be made by retiring abroad. Although this trend could have occurred 18 months ago, factors such as banking crises and an uncertain European economy had made people cautious.

Now though, he explains, “the [euro] has dropped against sterling so your money is worth 25% more. Property has dropped… in Spain it is down 65% […] Then you throw in pension freedom and it becomes a no-brainer.”

Copyright M2 Bespoke 2015

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