What happens if I retire abroad?
Before you retire abroad or move abroad during your retirement, you should consider the tax situation that you will leave behind in the UK and the one that you will find in your destination country. This section aims to cover most tax-related things you need to think about before you go abroad and those things you need to do when you get there.
If you retire abroad you might still have to pay UK tax, even if you become non-resident in the UK for tax purposes.
This section only looks at your UK tax position. You may need to seek tax advice in your destination country too.
This section applies to you whether or not you have reached your state pension age before you go to live abroad. You can work when you reach state pension age by using the tool on the GOV.UK website.
What do I need to do before I leave the UK?
If you leave the UK to retire abroad you need to tell various government departments and you must let them all know separately. In the next section we list government departments concerned with tax and benefits that you may need to inform.
You also need to think about the international effects of different actions that you might take when you move location, like selling a house.
You cannot assume that the tax consequences of doing things in the UK apply in the country to which you are moving. Let us take a simple example. If you move within the UK and sell your main residence and it has increased in value since you bought it, then UK law says that the capital gain is usually exempt from tax (see GOV.UK for a simple guide to this exemption). But if you move to country X and the actual sale of your main residence in the UK takes place after you arrive there, country X may charge you tax on the whole of the gain that arose whilst you were in the UK.
The lesson is that all significant actions taken around the time of a move abroad have to be considered in the light of the tax regimes of both countries. You may also need to consider the terms of a double taxation agreement if one exists between the UK and the country you are moving to.
If you leave the UK to retire abroad you need to tell various government departments and you must let them all know separately. You may need to inform some or all of the following:
- HM Revenue & Customs (HMRC) –
- if all your sources of income are taxed under the Pay As You Earn (PAYE) system, then telling HMRC once should be sufficient in respect of all PAYE sources. You can telephone the HMRC's Helpline. Ask them if you are likely to be due a tax repayment and to get on with making it. They will probably send you a form P85 to complete or you can download the form from the GOV.UK website;
- if you normally file a self assessment tax return, you should also contact HMRC on the Self Assessment Helpline;
- Child benefit –
- If you claim child benefit contact the Child benefit Helpline;
- Winter fuel payment –
- If you are entitled to the winter fuel payment you may be entitled to continue to receive it – GOV.UK gives more information;
- UK state pension
- The Pension Service, which will decide whether you will be entitled to increases to your UK state pension whilst you are abroad;
- Other benefits
- If you are receiving other benefits from the Department for Work and Pensions (DWP) then you need to contact the particular office dealing with each of the benefits. Do not assume that one office will tell another one;
- Council tax and housing benefit –
- Contact your local council about your liability to council tax, and housing benefit if you were in receipt of it.
The above list is not comprehensive, and there may be other UK government departments and organisations that you need to tell, depending on your own personal circumstances.
We list below a number of things you should think about; it is not a complete list as circumstances are so variable. If there are significant assets involved it is probably a good idea to take professional advice from a tax adviser familiar with international issues. You can find a tax adviser on the Chartered Institute of Taxation website.
- Sell or give away –
- If you sell or give away something on which a capital gain might arise, then you need to understand the tax rules in the UK and the country to which you are moving, in order to understand the tax impact of what you are doing in both countries. If there is a double taxation agreement between the UK and the country you are moving to you also need to consider that. There is a list of the UK’s double taxation agreements on the GOV.UK website. Timing of a gift or sale could be very important;
- UK property –
- If you are going to retain a property in the UK then you need to understand the rules in the UK for non-resident landlords. There is more information on the GOV.UK website. In addition, the overseas country may expect you to pay tax there on your UK letting profit;
- You need to tell HMRC if you sell a UK property – see GOV.UK for more information. There are additional factors to consider if the property is, or was previously, your main home in the UK;
If you want to transfer property of any sort between spouses or civil partners, remember that the UK has generous rules which often allow that to happen without tax consequences. The overseas territory may not be as generous, so timing of when you do it is important;
- UK income –
- If you are going to continue having UK income sources when you are abroad you need to understand how the overseas country is going to tax those sources and then how to approach HMRC Residency to ensure that you can have UK sources paid to you without deduction of UK tax at source, where possible;
- HMRC may want you to complete a self assessment tax return if you have continuing sources of income in the UK;
- UK pension funds –
- If moving abroad coincides with cashing in pension funds or receiving a golden handshake this needs to be considered with both tax regimes in mind;
- If you have a pension from a government or local authority source, some countries will not tax these but they will continue to be taxed in the UK. You need to check whether the UK has a double taxation agreement setting out the rules for which country taxes such pensions;
- Extended holiday –
- Some people moving abroad have an extended holiday between leaving the UK for good and arriving in their new home. Transactions which occur in this window may still be taxed in the UK even though you have left the UK permanently. The precise rules are complex and advice from a tax adviser may be needed if you have significant assets;
- Social security –
- You might be able to continue to receive benefits or make a claim for benefits if you go to a European Economic Area country, or a country that has a social security agreement with the UK. You can find a list of countries with which the UK has a social security agreement on the GOV.UK website. It is important to check the social security agreement with the country you are moving to before you leave;
- Check with the authorities in the other country if you can claim their benefits.
What do I need to do in my destination country?
If you retire abroad, you may have to pay tax both in the UK and in your destination country. Sometimes, you may have to pay tax on the same income in both countries, although you may be able to get double taxation relief. It is important to ensure that you do not overpay tax.
Many people from the UK who retire abroad will continue to have sources of income, and possibly capital gains, remaining in the UK.
For people on relatively low incomes it is often possible to prevent the payers of that income from deducting UK tax at source.
The most common sources of income back in the UK for pensioners who have retired abroad are:
- state pension;
- occupational or private pension;
- trivial commutation of pension funds;
- rental income;
In the next few sections we consider each of these sources to see how, and if, the UK tax liability can be reduced, eliminated or refunded.
Firstly it is necessary to consider what allowances are available to set off against those sources of income.
Am I still entitled to a UK personal allowance after I have retired abroad?
You are normally entitled to a UK personal allowance if you are resident for tax purposes in the UK. In addition, even if you are not resident for tax purposes in the UK, you are entitled to the UK personal allowance if you are a citizen of the EEA. The amount of the personal allowance to which you are entitled depends on your level of income in the usual way.
If your income arising in the UK is less than your personal allowance you can be paid most income sources without having tax deducted.
If your total income arising in the UK is less than the personal allowance then no tax should be payable.
If your taxable UK income is higher than your personal allowance then you should consider how each source of income can be removed from tax charge. You may have to complete a self assessment tax return.
What happens to my state pension if I retire abroad?
A frequent concern for pensioners who retire abroad is their ability to get increases to their state pension. The answer to this question is as follows:
- If you retire abroad to an EEA country or Switzerland you will get annual increases in your state pension, just as you would if you continued to live in the UK;
- If you retire abroad to a country that has a social security agreement with the UK you will get annual increases in your state pension, just as you would if you continued to live in the UK. You can find a list of countries with which the UK has a social security agreement on the GOV.UK website;
- If you retire abroad to any other country you will not get any annual increases in your state pension. There is an exception – if you retire abroad ‘part-time’, but live in the UK for six months or more each year, you will get annual increases in your state pension.
If you retire abroad to a country where you do not get annual increases in your state pension, the rate of your pension will remain at the level it is:
- on the day you leave the UK; or
- when you first qualify for the pension if you are already abroad.
If you return to or visit the UK for any reason you will get a higher rate of pension, but this will be reduced again once you return abroad if your stay in the UK is only temporary.
You may also find the information on the GOV.UK website helpful.
The DWP does not deduct tax under PAYE when making payments of the state pension. If HMRC believe that there is tax payable then they will issue you with a self assessment tax return or, for the 2015/16 tax year onwards, they may issue a 'simple assessment' of your tax bill.
If there is a double taxation agreement in force between the UK and your country of residence it is likely that this agreement will provide for the country of residence to have primary taxing rights over the pension. There is a list of the UK's double taxation agreements on the GOV.UK website.
Occupational pensions from the UK have to be divided into two categories:
- UK government and most local authority pensions;
- Other occupational pensions.
Under some double taxation agreements, UK government pensions and local authority pensions are only taxable in the country of payment. This means it is not possible to have them paid without deduction of PAYE if they exceed your personal allowances. Your new country of residence might not tax such pensions. If they do they should allow a tax credit for any tax due in the UK.
Other occupational pensions are usually taxed in the country of residence, so you can make a claim to HMRC to have them paid without deduction of UK tax.
Once again contact HMRC Residency to obtain the necessary forms to allow HMRC to authorise pension payers to cease to deduct tax. There is information on how to contact HMRC Residency on the GOV.UK website.
Trivial commutation of pension funds
Trivial commutation occurs when you convert an entitlement to a small amount of certain types of pension into a taxable lump sum. As the processes operate at the present time it is not possible to take advantage in advance of double taxation provisions. The pension payer will deduct UK tax and you will have to reclaim the tax.
You can start the repayment process by downloading, completing and sending in a repayment claim on form R43. You might also be able to claim relief under a double taxation agreement. You should check the tax position of such payments in your destination country.
UK rental income is always taxable in the UK no matter where you live.
If you are not resident in the UK, HMRC operate a special scheme called the non-resident landlord scheme on the rent you get from letting out your UK property. Under the scheme your tenant or letting agent collects the tax due on the rent and then pays it over to HMRC. You can find more information on the GOV.UK website.
Your tenant or letting agent must supply you with a certificate of tax deducted for the previous year ended 31 March by the following 5 July.
You must then complete a UK self assessment tax return and work out whether you have any tax to pay. You can normally get double taxation relief by setting off your UK tax against any tax liability arising on the rental income in your new country of residence.
Provided your tax affairs are up to date you can apply to HMRC to have your rents paid gross, that is with no tax taken off before you get them. You can apply online or download the application form NRL1 on the GOV.UK website. If you own the UK property jointly with someone else you both need to fill in an application form.
One of the undertakings if you apply to receive your rental income gross is that you agree to complete any self assessment tax return that HMRC send you.
From 6 April 2016, UK banks and building societies do not deduct tax from interest they pay to you.
Where can I find more information?
You can find more information about UK tax if you retire abroad on the GOV.UK website.
The GOV.UK website also has form P85 – Leaving the UK – getting your tax right, which you might need to complete and send to HMRC when you leave the UK.
You can find out how to make a claim under a double taxation agreement on the GOV.UK website.
There is an explanation of how to file a self assessment tax return if you live outside the UK on the GOV.UK website.
To claim personal allowances and a repayment if you are not resident in the UK, use form R43.
For information on your state pension if you retire abroad, go to the GOV.UK website.