Every year, hundreds of thousands of Britons pack their bags and go to live in sunnier climes. James Salmon explains how upping sticks permanently will affect your savings, pensions and tax.
CHECK YOUR STATUS
There are two crucial things to consider when you move abroad: residency and domicile. Generally, when you move to another country and become one of its residents, you'll be subject to its tax on your income, pensions and savings. Your domicile is where you are from: so if you live in Spain but were born here, you are resident in Spain but UK domiciled.
The tax situation is complicated, but the UK has what's known as double taxation treaties with most countries which ensure you can't be taxed on the same money in both countries. As a resident of your new country, you can still be subject to UK tax - for example, if you keep a property here and rent it out. But the double-taxation agreement ensures you won't pay tax on that income in the country where you now live. If you work abroad, you could pay a lower than normal tax rate - speak to your foreign employer.
How you become a resident of another country depends on its laws. If you move to France intending to live there, for example, you become a resident on arrival. It's harder to become an Australian resident, though you'll still pay Australian tax on any income you make Down Under. In Spain, you're resident if you live there for more than 183 days a year.
Many Britons who become resident abroad remain UKdomiciled - and where you are domiciled is crucial in inheritance tax planning. UK inheritance tax (IHT) will be payable on your worldwide assets if you are UK-domiciled. But if there's a double tax treaty, you'll get relief from IHT in one country for the IHT paid in the other.
To change your domicile, you'll have to lose all links with the UK: this means closing bank accounts and selling off other assets. And you will have to tell the taxman you are leaving by submitting a DOM1 form to your local tax office. You can download one at www.hmrc.gov.uk.
The French do not differentiate between residency and domicile. And once you become a French resident, the UK taxman has no claim on any of your worldwide assets apart from your UK property. You pay tax at French rates on all other worldwide assets.
DO YOUR HOMEWORK
You need to tie up all your UK tax affairs before you move. If you're working, you'll need to send your P45 to your local office. Anyone moving abroad also has to send a P85 form which you can download at www.hmrc.gov.uk or phone HM Revenue & Custom’s residency helpline on 0845 070 0040 with any tax queries.
Phone The Pension Service (0845 606 0265) to find out if you can have your state pension paid into an overseas bank account. It can also tell you if you'll get increases in line with inflation each year (0845 300 0168).
Unless you are moving within the European Union this won't happen, so your state pension will effectively be frozen at the rate you're paid when you leave.
You can't put any more money into your Isas - and the interest will be taxed in the country you're moving to. If you want to keep some money in sterling to fund spending on visits to these shores, open an offshore account (usually these are based in the Channel Islands or Isle of Man) with a subsidiary of a UK bank or building society.
Interest rates on sterling accounts are usually higher than Euro equivalents. Think about consolidating different personal pensions into a Sipp (self-invested personal pension) before you go. None of the usual destinations known for expat Brits offers such a flexible type of plan.
Do not ignore currency risk. A big fluctuation in exchange rates can cost you dear. Use a currency specialist such as HiFX to move large amounts. High Street banks can charge up to 4% more to transfer your money. So on a £100,000 switch into Euros; you could be £4,000 better off.
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