Prior to the Budget announcement on 30th October 2024, there was much speculation about what tax changes the chancellor would introduce. As is often the case amid significant fiscal policy changes, there were concerns that wealthy individuals would leave the country if their taxes increased, making it more difficult for the government to raise revenue.
Many people consider retiring abroad too as they believe they can achieve a better quality of life than they would in the UK.
However, researchers from the London School of Economics (LSE) interviewed 35 individuals in the top 1% of UK earners. They found that none of them were currently planning to leave the UK for tax reasons and said they wouldn’t in the future.
Indeed, the grass isn’t always greener on the other side and there are some distinct challenges associated with moving overseas. That’s why, although there is a lot of talk about wealthy individuals leaving the country, the reality is quite different.
If you’re thinking about moving abroad for tax reasons or otherwise, you might need to consider these four unique challenges.
1. You might not have the same quality of life in a new country
Many people that talk about moving abroad only consider the financial aspects of the decision. However, it’s important to think about the quality of life that you enjoy at home and how that would compare with other countries.
In its research, the LSE found that one of the main reasons wealthy individuals didn’t want to move to tax havens was that they may lack many of the cultural and social activities that they’re used to at home.
If you move to a different country, you might find that the culture or local amenities might not align with the kind of lifestyle you want. You may also be leaving your friends and family behind.
While this is not true of all countries in the world, moving somewhere simply because it has lower taxes or higher average salaries could mean that you make sacrifices in other areas of your life.
2. There could be additional costs you haven’t considered
You may want to retire abroad somewhere that has a lower cost of living, so you can achieve a better quality of life in retirement.
However, even if your general expenses are lower, there could be additional costs you haven’t considered. This includes:
- Medical care
- Visa fees
- Travel costs for visiting family and friends in the UK
- Fees for transferring your savings abroad.
As a result, you may not save as much as you thought you would by moving abroad. In some cases, the cost of living could be higher once you factor in these expenses.
That’s why it’s important to do your research before deciding whether moving is the right choice for you.
3. Moving your pensions abroad could be complex
If you plan to retire abroad, you’ll need to decide what to do with your pension savings, as these will likely form the bedrock of your retirement income.
You have two main options for managing your defined contribution (DC) pension when moving abroad:
- Leave your savings in the UK scheme and draw from them while abroad.
- Move your savings to a pension scheme in your new country of residence.
Leaving your savings in the current scheme may appear to be the easiest option but many providers won’t pay your income into a bank account overseas, and those that do may charge a fee. If you pay the funds into a UK bank account and then transfer them abroad, you may also pay transaction fees, meaning you could lose a significant portion of your savings.
The alternative is to move your savings to an overseas pension scheme. Normally, you’ll need to move to a qualifying recognised overseas pension scheme (QROPS) if you want to avoid large fees. However, if you were considering this you would need to take financial advice as these arrangements differ from UK regulated pension schemes.
Additionally, if your savings exceed the Overseas Transfer Allowance (OTA) of £1,073,100 in 2024/25, you may face a tax charge when moving your pension.
Retiring abroad could affect your State Pension payments too. While you still receive your State Pension, you may not benefit from any triple lock increases. Essentially, your payments would normally freeze at their current level when you move to certain countries, including Australia, Canada and South Africa.
That’s why Money Week reports that the average State Pension for somebody living in the UK is currently £10,099 a year. In comparison, this falls to £2,946 for those who retired abroad.
As a result, your retirement income could be significantly lower if you move overseas. This could make it more difficult to achieve your desired lifestyle, even if you move to a country with a lower cost of living than the UK.
4. You may not receive the vital care you need in later life
As you get older and could face more health issues, you may require more medical care. Additionally, you might need support from carers with everyday activities and, in some cases, may need to move into a residential facility.
If you’re living in the UK, you have access to NHS services free of charge. The local authority will also contribute to your social care costs if your total assets – including your home – fall below £23,250.
However, if you move abroad, the cost of care will vary a lot. Certain countries may have a subsidised health service that still requires you to make some payments, while others have completely privatised systems.
Depending on your chosen country, you might not receive government support with your social care costs either.
As a result, you could pay more for your medical and social care than you would at home and it’s important to consider this cost when deciding whether you should move overseas.
The quality of the care you receive could differ from the UK too. Not all countries have the same health care infrastructure that we do, so you may not have access to certain treatments or medications.
Also, you may not have the support of your family if you live in another country. All this could mean that you don’t get the vital care that you need in later life.
5. Living in another country could create estate planning complications for you and your family
Creating an estate plan is crucial as it allows you to pass wealth to your loved ones and potentially reduce the Inheritance Tax (IHT) they pay. However, estate planning could be very complicated if you move abroad.
This is because you might have properties, savings accounts, investments and pensions spread across both countries. Depending on your situation, you may pay IHT on any UK assets but could also face tax charges in your country of residence.
Normally, if you reside in the UK for 20 years or more, you will be fully liable for IHT here until you have lived abroad for more than 10 years. After this period, your family are likely to still pay IHT on UK assets, but assets held in your country of residence may be subject to local inheritance laws.
Mitigating a large IHT bill could be more difficult in the future due to recent changes announced in the Budget – learn more in our article on upcoming IHT changes – so estate planning is more important than ever.
Unfortunately, it could be very challenging for your loved ones to navigate multiple tax systems and find all your assets so they can determine exactly what they need to pay after you’re gone.
As a result, without proper estate planning, your family could face significant complications during an already difficult time.
We can help you achieve your goals without moving to another country
You may be considering moving abroad because you enjoy the culture and lifestyle in your chosen country. In this instance, moving might be the right choice, provided you carefully consider the financial implications.
However, emigrating may not be the most sensible course of action if you are simply trying to reduce the taxes you pay or move somewhere with a lower cost of living.
In this situation, we can help you achieve your goals without having to move. For example, if you’re concerned about the tax you might pay in the future, we can explore ways to mitigate a large bill.
Alternatively, if you’re worried that you don’t have enough retirement savings to achieve your desired lifestyle, we can discuss ways to maximise the size of your pension pot.
Ultimately, with our support, you can reach your goals without uprooting your life and moving to another country.
Get in touch
If you’re concerned about your ability to reach your financial goals, we can help.
Email hello@fcadvice.co.uk or call 0333 241 9900.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term (minimum of 5 years) and should fit in with your overall risk profile and financial circumstances.
