How to retire to the Canary Isles with financial peace of mind
Anyone recently retired or approaching retirement is entering a new and exciting phase in life. While some worry retirement will be boring, many embrace the freedom it offers. If you have chosen to retire in the Canary Isles, you probably fall into the latter category!
Tenerife certainly offers a beneficial lifestyle for retired expatriates, but long-term financial security is crucial to help you enjoy your retirement years. You need to take a good look at your finances and the way you hold your assets. Your situation is totally different now from your working days in the UK, so be prepared to make some adjustments.
Savings and investments
You may have built up a successful portfolio of investments over your working life, but your circumstances and objectives were different then. With a regular salary you could afford to take more risk and focus more on growth.
If you are looking for income now you are retired you need to plan for that, and also to protect the capital that generates the income. You should aim to earn at least enough capital growth to keep pace with inflation over time to help maintain your spending power throughout retirement.
It’s a fine balance. The starting point is to obtain an objective assessment of your risk tolerance. Together with a good understanding of your aims, circumstances, needs and time horizon, this is key to ensuring your portfolio is suitable for you.
All that free time in retirement costs money! You can help maximise your income through strategic tax planning. While tax mitigation opportunities are limited when paying PAYE on your salary, how you hold investments can make a difference to retirement income.
Take note that UK tax planning is unlikely to be effective in Spain. ISAs, for example, become taxable for Spanish residents. Once resident in Spain, you gain access to investment opportunities that might provide better tax-efficiency alongside other advantages.
This is the time you get to benefit from those years of pension contributions. There is no one-size-fits-all solution for expatriates, but once you are no longer UK resident it may become less beneficial to leave UK pensions where they are.
UK pension income is paid in sterling, so if your key spending is in euros, this invites exchange rate risk. UK pensions remain subject to UK regulations, which could change for non-residents after Brexit.
Many expatriates transfer UK pensions to a Qualifying Regulated Overseas Pension Scheme (QROPS) or reinvest funds into more tax-efficient arrangements for Spain.
To protect your long-term financial security, research your pension options and understand the various implications. You need to take care here, so professional, regulated advice is essential.
None of us like to think about our departure from this world, but there is no denying that reaching retirement age does bring it closer to home.
Decide who you want to leave your assets to, how much and when. Then research the most effective way to achieve this, in the most tax-efficient way, taking both Spanish and UK rules into account.
An integrated financial planning approach produces better results than just focusing on one element at a time. While some try a DIY approach, cross-border tax, wealth management, pensions and estate planning is complex and it is difficult to objectively assess your own situation. For peace of mind, talk to a specialist adviser who will take time to understand your circumstances, needs and goals to help you secure a prosperous retirement in the Canary Isles.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com