Estate agents can convince you that retiring abroad is laughably easy on your finances, and there are certainly many areas where property is much cheaper per square metre than in the UK.

But do not forget the possible extra costs when you are working out how much money you have to spend.

Purchase taxes and legal fees can add up to a tidy sum, just like they do here. So can estate agents’ fees, which in parts of France can be as high as 12%.

Exchange rate fluctuations can also have a big impact on buying power, especially if there is a delay between finding a property and handing over the cash.

Legalities

Most people who retire overseas report that the process of buying a home there is no more or less bewildering than in Britain.

But each country’s laws are different, there are language barriers, and a minority of people do fall prey to crooks – so buyer beware!

Buying property in much of southern Europe requires you to commit and hand over a deposit of as much as 30% of the price before searches, surveys and finance are resolved.

Be sure you want the property before you make a formal offer, and ensure the contract stipulates sufficient circumstances in which you can pull out and get your money back.

The estate agent may do much of the information-gathering; otherwise you will need a lawyer or notary to conduct the relevant searches. Establishing boundaries and clear title can, especially in rural areas, be a long process.

Bear in mind that notaries are not there to protect the interests of either the buyer or seller.

Often the best thing to do is to ask the local notary to handle the whole legal process – but for peace of mind, appoint your own notary and/or English-speaking solicitor to ensure the purchase is handled in your best interests.

Pensions

You canretire anywhere overseas and still receive your UK state pension. If you retire within the European Economic Area or one of around 20 other countries with which we have a social security deal, your pension will receive annual increments.

Elsewhere it will be frozen – so if you go to Canada or Australia, for example, the pension’s value will diminish. Personal and company pensions will generally be paid abroad but some will pay into UK banks only.So you may be charged to transfer the money into the local currency, placing your nest egg at the mercy of exchange rate fluctuations.

If you are going overseas before drawing a private or company pension, it may be better, with Inland Revenue approval, to transfer the fund to a pension scheme in your new country.

Tax

Leaving the UK does not mean waving goodbye to the taxman. If you become a non-UK resident,you will not be liable to UK tax on any overseas income; you’ll have to pay that to your new countryinstead.

But you will normally still have to pay UK tax on your UK income – and you may also be charged tax on the same income by your new country. Most countries have double taxation agreements to prevent this, so alert all relevant authorities.

There are further complications if you take a while to move abroad permanently or you flit back and forth to the UK. If you spend 183 days or more in the UK during the tax year, or your visits average 91 days or more a year over four years, you will still be classed as a UK resident and therefore liable to UK tax on your enrtire UK and overseas income.

Inheritance

Planning what you want to happen to your estate after you die is vital enough in the UK but if you are moving abroad it assumes paramount importance. Death duties overseas can be punitive.

In much of Europe, your house purchase contract should include a carefully worded description of how your marital finances work, as this has important implications for inheritance tax.

Rules on heredity differ between countries, and dying without a proper will can leave your heirs unable to inherit in the way you would wish. In Spain, for example, dying intestate would oblige you to leave at least two-thirds of your property to your children – and if you have remarried or have a partner to whom you are not married, this could create difficulties.

You can get round many of these problems by making two wills: a UK will stating what you want to happen to the Spanish property and a Spanish one to say that assets should be disposed of according to your UK will.

To cut death duties, you may wish to buy any overseas property jointly with your adult children. You can even put it entirely in their names and retain a life interest for yourselves but you must be careful to avoid gift tax in the process.

Written by Jeremy Davies

This article was created: 8 August 2006.
This article was last edited: 13 November 2006.

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