There are important planning considerations for clients thinking of moving to Europe, says David Morley (pictured above) of specialist expat financial planning firm Blevins Franks.
Rising UK tax burdens and lifestyle concerns are prompting many Britons to consider moving overseas.
For younger people this often means the Middle East, Singapore, or countries with digital nomad visa programmes. For other, often wealthier, people, the movement is quieter, accelerating their retirement plans for a better quality of life in a warmer climate.
The starting point to advise them should involve two principles:
- What do they need legally to live in another country?
- In tax terms, what is residence and nationality?
From a UK view this means understanding the Statutory Residence Test and a client’s exposure to UK income tax, capital gains tax and inheritance tax.
From our experience as specialists in expat finance, people often do not appreciate that when non-UK resident, certain UK income and assets remain subject to UK taxation.
Forms, from tax law to taxation, will be in the local language. Cross-border families will also encounter a level of tax complexity and legal concepts that are unfamiliar.
Examples include the UK’s temporary non-residence rules, double tax agreements (DTAs), forced heirship rules, and the fact that for the first ten years of non-UK residence they will be liable to death taxes in their new country of residence and the UK.
Even after becoming not Long-Term Resident, most UK assets remain subject to inheritance tax, including UK pensions from 6 April 2027.
There’s a a natural bias for clients to remain with their UK financial adviser. This has the potential to create a dilemma for the adviser, as they will need to ask themselves whether they have the knowledge to deliver effective advice, whether that advice can be delivered lawfully, and will the advice be covered by their professional indemnity policy?
Pensions and cross-border taxation
Under most DTAs, pensions are taxable in the country of residence rather than the UK, with notable exceptions for government service pensions. However, many DTAs restrict to pensions from ‘past employment’ (usually the ‘other income’ article resolves the situation) or the pension must be taxed in the country of residence in order to receive an NT coding.
Pension tax-free cash may not be the norms in the new country. In Spain, for example, a pension lump sum is subject to personal income tax, whereas in France the tax rate can be 7.5%, subject to certain conditions and the addition of social charges.
Inheritance and succession: a change of paradigm
UK inheritance tax is often a central concern for retirees considering emigration. While the UK operates a 40% tax on estates above the nil-rate band, many European jurisdictions adopt a markedly different approach.
In France, the concept of forced heirship governs who and how much an individual receives, and the rate of inheritance tax that applies at death. This can be an unpleasant surprise for a ‘blended family’ wishing the treat children from past marriages equally – children pay a top inheritance tax rate of 45%, whereas for step-children it’s 60%.
The forced heirship concept also exists in other popular retirement countries such as Spain and Portugal.
Forced heirship is a civil law concept. Another aspect of civil law is the lack of recognition for trusts. This can be seen most notably in Spain, where the courts have specifically ruled that any trust is transparent for tax purposes. This can cause a particular problem for people who have undertaken UK tax planning using trusts, possibly many years before moving abroad.
Wealth and property taxation
The UK has no explicit wealth tax. However, many European countries do impose wealth tax. France levies an annual tax on real estate wealth exceeding €1.3 million, with rates ranging from 0.5% to 1.5% after an allowance of €800,000. Crucially, this tax applies only to property assets, not financial investments.
Spain’s wealth tax is both regional and progressive, with wealth tax in some regions starting from as low as €1,000,000. To make a region more attractive, many regional governments introduced a 99% deduction for wealth tax. This led to the central Spanish government introducing solidarity tax (basically a national wealth tax), with individuals paying the greater of the wealth tax or solidarity tax.
Conclusion
With thought, knowledge, and planning – often using civil law solutions for civil law problems – a client’s financial planning objectives can still be achieved.
But a clear understanding of residence, UK and overseas taxes, legal systems and how they work together is essential as UK-centric solutions may be ineffective or lead to unexpected outcomes.
So, robust cross-border planning, plus appropriate licensing and professional indemnity cover, are essential to deliver compliant, effective and client-focused financial advice.
David Morley is director of wealth structuring at Blevins Franks, which has been advising clients moving overseas for more than 50 years
