Planning a move to the EU?
As Britain faces a cost of living crisis this autumn, you may be considering a move to continental Europe where the sun is warmer and your bills lower.
There are five key issues that you need to understand and plan for, before thinking about renting or buying a property in the EU.
If you are heading for the EU any visit of more than 90 days now requires a visa, which you can only obtain from a UK-based Consulate of the country you are moving to.
You will need to submit an application in advance, along with additional material to confirm you have sufficient income not to be a burden on the social system of your chosen country.
“Once you arrive, you are required to convert the visa into a residency permit, normally within 90 days of arrival,” said Jason Porter, a director of specialist expat financial planning firm Blevins Franks.
2. Medical Insurance
When moving you will need to invest in a private medical insurance (PMI) policy with a minimum level of cover, from an insurer approved in the state you are moving to.
Once you arrive, it is worthwhile investigating the local healthcare system, as you may be able to get access for free or on a subsidised basis. If so, you can then cancel the monthly PMI payments.
“If you are already of UK state pension age, you can obtain form S1 from the Overseas Healthcare Service – part of the NHS,” said Jason Porter, director at Blevins Franks wealth managers. “This will entitle you to claim reimbursement from the NHS for most of your healthcare costs after you move. If you move before state pension age, then you can apply for an S1 when you reach this age and then stop paying the PMI.”
If you are retiring, then it is likely your pension – private, company and/or state – will form most of the income you hope will meet your living expenses.
Pension schemes in the UK are relatively flexible compared to those in the EU, and you can merge and transfer pensions, take a tax-free lump-sum, as well as drawdown on your pension fund without converting it to an annuity.
Europe does not have the concept of a tax-free lump sum, so if it is your preference to take this, do it before you leave the UK, otherwise it is likely to suffer tax in the country you move to.
“In Spain, for instance,” said Jason Porter, “you will need to decide what you want to do – and do it – before you leave the UK. Merging a number of pension schemes or transferring them to a European scheme are now chargeable events, following a review by the Spanish tax authorities.
“In Portugal, France and Cyprus there are certain tax breaks around drawing down capital from your pension fund, but it would be too late to benefit from these if you have already converted your fund to an annuity.”
4. Wealth Tax
This will be something new for most UK expats – an additional, annual tax based on the financial value of your wealth. It is a particular issue for those with real estate above a certain value, so if you have built up a rental portfolio over the years, you might need to establish your exposure and even think about whether you want to keep it.
In most countries where wealth tax prevails, your exposure is restricted where this tax combined with your income tax liability cannot exceed a certain percentage of your taxable income.
“It is therefore beneficial to restrict taxable income,” said Jason Porter. “There are certain compliant financial products you can invest in locally which satisfy this need.”
The UK legal system is based upon common law, while most of the EU operates under civil law. As the two systems have evolved, they have developed many differences, such as the fact there is no real concept of trusts under civil law, or freedom to decide who your assets should pass to (known as forced heirship and common across Europe).
“The EU introduced new European Succession Regulations in 2015,” said Jason Porter. “This means that if you own property in a member state or move there you can benefit from choosing your own succession. But this is still a very complicated area you will need to plan for.
“This is even more so if you are moving to France, where legislation has already been introduced to counter some of these benefits.”