Retiring abroad could affect your income tax bill, as well as the amount of tax you pay on your savings and pension.
Do I pay UK tax if I live abroad?
If you move abroad for good, your income tax liability moves with you.
You may still have UK tax to pay on investment or rental income in the UK.
You have to declare your worldwide income to the tax authorities in your new country of residence, even if some of it originates in the UK, but double tax relief is available where the income is taxable in both countries.
This is because the UK has a double-taxation agreement with many countries.
The most popular places to retire, such as France, Spain, and Australia, all have these agreements with the UK.
Retiring abroad and tax on pensions
Pension income is normally taxed in your country of residence.
It is not taxed twice but may push your other income into a higher overseas tax band.
Income tax rates vary considerably around the world. Most countries allow you to keep an initial sum tax-free and then charge tax at escalating rates, depending on which band your income falls into.
Retiring abroad and tax on savings
Income from savings is generally taxable in your country of residence. NS&I and cash Isas, which are tax-free in the UK, are not sheltered overseas, so income from these is taxed along with everything else.
Depending on where you live, there are local tax-free equivalents that may be worth investigating. In France, the Livret A is an instant-access savings account that pays interest tax-free. You can hold up to a maximum of €22,950 in a Livret A account. A couple can have one each.
In Canada, residents can invest up to $6,000 a year in a Tax-Free Savings Account (TFSA). Like an Isa, this can be held in cash or stocks and shares.
Retiring abroad and capital gains tax
Once you are resident overseas, you may also be liable for capital gains tax (CGT).
Fortunately, the family home is excluded from CGT in France, while in Spain you are exempt if you are aged 65 or above and have lived in the property for three years or more.
Your main residence is also exempt from CGT in Australia, Canada, Ireland, and South Africa. In Germany, it’s exempt so long as you have lived in it for 10 years or more.
In the US, capital gains of up to $250,000 are excluded from tax if they result from the sale of your main home, and $500,000 if you’re married and file your taxes jointly
In Cyprus, a limit of €85,430 applies on a similar basis. In Italy, the gain on the sale of your main home is exempt as long as the proceeds are reinvested in another main home within one year of sale. New Zealand does not charge CGT.