On Monday we invited your questions on moving and retiring abroad. There is no doubt that this is an important area for Citywire readers: we were overwhelmed with dozens of wide-ranging queries.

Rachael Griffin, head of tax and product law at investments and pensions provider Skandia, has answered a large selection of these questions. Owing to the volume of questions, the remainder will be published on Monday morning.

*****

Isobel martin asks: What is the tax position on personal pension and savings? Is there a sum you must have before you can become a resident? Does the British Govt allow receiving British state pension and increments in NZ?

Rachael says: Several people have asked about what will happen to their UK pension scheme if they move, or retire abroad.  With regard to your pension, there are a number of things to consider before you move to another country.

First, ensure that you obtain a state pension forecast which will give you an indication of your expected state benefits.  Where you move to will determine whether you are entitled to yearly inflation increases.  For example, if you move to New Zealand you would not qualify for a yearly inflation increase, while if you move to European Economic Area (EEA) or a Country with a special UK agreement such as the United States, you will be entitled to an increase.  If in the future you do return to live in the UK, your State Pension will be increased to current inflation levels.

Second, it’s important to contact HMRC Residency for information regarding any tax liability on any income over the personal allowance (currently, £6,475).  You may be eligible to pay UK tax even though you are abroad - this will depend on where you retire and the terms of any double taxation treaty (see answer below for more information on this) which may exist between the UK and the country in which you are living.

Third, it may be more tax efficient to have benefits paid into a non UK based bank account, so it’s important to inform your local social security office, HMRC, Department for Work and Pensions and your personal pension provider regarding your move abroad.

Finally, while your pension is within a UK registered pension scheme, all the UK relevant rules apply - such as the minimum retirement age (currently set at 50, changing to 55 in April 2010) and the requirement to receive an income at age 75 either through an annuity or ASP. 

If your intention is to permanently settle abroad, then you should consider seeking independent financial advice regarding the different pension transfer options which may provide more flexibility for your specific situation.

*****

Elizabeth asks about double taxation treaties: We are considering a move to Portugal. I understand Portugal has a double taxation treaty with the UK. Does this mean that as Portuguese residents (and therefore Portuguese tax payers) we would receive 100% credits on any tax paid in the UK? Also, are Portuguese residents holding UK tax free investments (e.g. PEP and ISA's) liable to pay tax in Portugal on interest received on these investments?

Rachael says: Portugal and the UK do indeed have a double taxation treaty and under this agreement, the same income/ gains will not be taxed twice (ie by both countries).  Rules exist as to what income/ gains are taxed where.  If income/ gains are taxed in both countries then this can be offset.  For example, if income tax is paid in the UK then this can be offset against the tax liability in Portugal.  However, if higher rate tax is paid in the UK then it may mean that the difference paid cannot be reclaimed in Portugal.

Generally speaking, to be considered resident in Portugal, you will need to spend more than six months in Portugal during the Portuguese tax year (a calendar year).  However, if you continue to spend time in the UK, then you may also retain your UK residency status and be deemed a ‘dual resident.’   If this is the case, then the Double Tax Treaty between Portugal and the UK does provide further details on how to determine where you are resident. You are able to view details of such treaties on the HMRC website. 

If you are considered resident in Portugal you will be liable to pay Portuguese tax on your worldwide income and capital gains, and you must declare this to the Portuguese tax authorities.

Portuguese income tax rates for 2009 range from 10.5% on income up to €4,775, to 42% on income over €64,110.  There is no personal allowance in Portugal, but your tax liability is reduced by small tax credits, which vary depending on a number of factors such as your marital status.

Unfortunately UK PEPs and ISAs are only tax efficient for UK purposes and for UK residents and therefore any income derived from these are subject to income tax in Portugal at either the scale rates of tax or at a flat rate of 20%.  Although note that PEPs have been converted into ISAs recently – so no longer exist on their own.

A financial adviser with knowledge of both the UK and Portuguese tax law can provide an invaluable service for people who intend to live abroad.  An adviser will be able outline your specific tax position and can help you make decisions about what tax efficient plans could be put in place to ensure you have a smooth and financially stress-free move abroad.

*****

David Rogers says: I am fortunate enough to have the right of permanent residence in Australia if I wish to move there permanently. I realise my /our state pensions would be frozen and also that we would no longer get the tax benefits of our ISA investments. My personal pension is already in place, i.e. I am receiving it. Inheritance tax is of no concern as we have no dependants.

What are the other implications bearing in mind that we are already in our mid 70s?

Rachael says: Anyone emigrating abroad should consider their residency and domicile, both of which can affect the type and the amount of tax they will pay.  If you’re found to be resident in two countries at the same time, you could actually be taxed twice!  The UK has a number of double taxation treaties that may prevent suffering tax in both countries.

However, when you are thinking about emigrating, you should also consider your long term goals such as whether you intend to stay abroad permanently and if you should move your assets, such as your personal pension, abroad. This may be a crucial factor when all you investments and pension payments are being made in sterling and your living expenses are in a different currency.  Currency can play a significant role on pension values. For example, if you receive a pension on the 19 May 2000/2006/2008 the value of the payment may fluctuate with exchange rates and the difference in the currency could be:

Before emigrating, sit down with a financial adviser and review your assets in order to ascertain if further action needs to be considered before the move.  If for example, you will be renting out a property in the UK while living in Australia, the tax implications of the income received – both in the UK and in the Australia – will need to be assessed.

An adviser will be able to review your current and future tax position, any existing policies you have, and evaluate if these policies are recognised and appropriate once you’re living in Australia. 

*****

David says: I am an NHS worker and am considering moving permanently to New Zealand or Australia. I have contributed to the NHS superannuation scheme throughout my career and am now in my mid forties.

What would be the implications of making such a move in respect of my future pension?

Rachael says: I’ve outlined a number of considerations that should be made when moving abroad in some of my earlier responses that you may find valuable.  As with any move abroad, obtaining financial advice both in the UK and in the country that you are moving to should be on your ’to do list’ along with booking the removals van.  There may be planning opportunities that you can take advantage of prior to your move which may not be available once you’re settled into a new country.

I assume that your pension is a defined benefits scheme and you will be aware that if you transfer to a different pension scheme you may lose some of the benefits specific to your current scheme. 

If you do transfer your pension scheme, there may be a tax charge upon transfer of a UK pension to an Australian superannuation fund if the transfer is not received within 6 months of you becoming an Australian resident, illustrating the value of planning ahead!

If you leave your pension within the UK, under the Australia and UK double taxation agreement, a UK pension paid to an Australian resident is only taxable in Australia and will be included within your assessable income.  However, depending on the nature of the UK pension fund, the pension may fall within the Foreign Investment Fund legislation and therefore local advice should be sought.

*****

John says: Just a brief statement of tax implications on retiring abroad and then specifically Australia. Are there special rules governing retirement in relation to UK authorities? Can you just take your assets and go?

Rachael says: Some of my earlier responses will answer your questions about accessing a pension while abroad and about double taxation treaties; however, when retiring abroad the scope of financial planning extends far beyond that of just a pension.

Your domicile and residency will determine your overall tax position in many countries and inheritance tax is one of the key elements to consider.  If you are deemed UK domicile, UK inheritance tax will apply to your worldwide assets in the event of your death.  Once UK domicile, you will remain eligible to pay UK income tax regardless of your country of residence.  It is essential that inheritance tax planning is considered so that you can best protect your assets in the event of your death.

If you are eligible, you may want to utilise the inheritance tax annual exemptions (currently set at £3000 per year).  As with any IHT planning, the order in which any gifting is made should also be taken into account, i.e. outright gifts should be made, then potentially exempt transfers and then chargeable lifetime transfers. You should keep in mind that if a gift is made while you are not resident in the UK but are still considered to be UK domicile, this gift is still subject to UK inheritance tax and UK reporting obligations apply.