Will expat pensions generate sufficient income for EU visas?

UK pension schemes may not generate enough of an income to allow UK pensioners to gain eligibility to apply for a visa in EU countries, according to a new analysis from Blevins Franks and its new European Emigration Advisory Service.

Jason Porter, director of the specialist expat financial firm, said the level of income that is considered ‘sufficient’ will vary from one EU country to another. However, he added it is likely that many retirees will not have enough of a pension income to convince their country of choice that they have sufficient income to support themselves and their dependents and will therefore fail to prove that they will not be a burden on the state.

According to Mr Porter, this could be particularly problematic for many expats who have already invested their pensions in EU-compliant, tax-efficient investment products.

“Many have placed their financial assets in life insurance bonds or UK pension schemes and intend to utilise the flexible and often tax-efficient withdrawal facilities associated with such structures,” he said.

“The potential irregularity of payments and the fact some of these may not be regarded as wholly constituting income could have consequences in terms of meeting the sufficient income requirements of a residency permit.”

Mr Porter added that there are some jurisdictions in the EU that have already developed a new interpretation of EU visa laws allowing a deposit of the income required for the specified period of the residency period to be considered sufficient. However, there are many others that have put stricter rules in place, demanding proof of regular, taxable income from sources such as earnings, pensions, rentals or dividends.

“These expats will need to take advice on what is effectively a balancing act between tax efficiency and meeting the income stream requirements of the residency permits best suited to them.”

Financial experts at ExpatRoute have taken a closer look to see how the government is attempting to alleviate the impact of this issue on UK citizens, and have highlighted some of the actions you can take to increase your chances of securing an EU visa in the future.

Advice from the UK government

Under current UK laws, the Department for Work and Pensions will allow workplace pensions to be paid overseas — legislation that the government does not expect to be changed in light of the UK’s decision to leave the European Union. It also states that, where a workplace pension scheme is paid into a UK bank account, the bank should contact the retiree directly if they need to change the way the pension is received as a result of changes caused by Brexit. This means that expats looking to gain an EU visa will not experience any delays in their regular pension payments as a result of changes to legislation.

The UK government has also confirmed that a retired British citizen can continue to receive their state pension even if they move to another country that is within the EU, EEA or Switzerland. In addition, the pension amount will be increased in line with the rates paid in the UK regardless of the location of the bank account in which the pension is being paid.

All in all, it appears that the UK government has put a number of safeguards in place to ensure pension payments are not interrupted as a result of Britain leaving the EU. Unfortunately, for many EU countries these safeguards are no longer enough for their governments to consider UK pensions ‘sufficient income’ to allow the granting of an EU visa.

What are my options?

Sadly, where a UK state pension and UK government pension safeguarding aren’t enough to persuade an EU state that you are a reliable applicant for an EU visa, you may have to consider other options to help you achieve your retirement goals. There are many ways in which you can boost your retirement income but not all will be suitable for your personal circumstances, so it is important to seek professional advice before you decide which path to take. To help you begin your search for an alternative method of securing a visa, we have listed two of the most common below.

Private pensions

Thus far, Brexit has had minimal impact on private pensions thanks to HM Revenue & Customs (HMRC) qualifying overseas pensions scheme (QROPS) list. This list allows those with pensions in the UK to make free pension transfers to recognised schemes based abroad. For example, under the QROPS scheme, expats can transfer money to an overseas pension scheme without having to pay tax. There are many benefits to this for people seeking to gain an EU visa; namely, you can have local access to an additional private pension in your country of choice. What’s more, by moving to a QROPS in a tax-free jurisdiction, you will be able to reduce your tax liabilities and subsequently boost your pension income to a level that is more acceptable to the country in which you are applying for a visa. The only thing to remember is that your chosen scheme must meet certain criteria before it can be featured on the QROPS list. These criteria include:

It must be recognised: Your chosen scheme must be recognised for tax purposes in its jurisdiction, and it must be registered with the jurisdiction’s tax authority. It must also be open to all people living within the area and tax relief must be offered on member contributions.
It must be regulated: The scheme must be regulated by the local pensions regulatory body in the jurisdiction where it is based.
It must be recognised abroad: The scheme must be recognised overseas, and the same tax rules on pension benefits must apply to both tax residents and non-residents alike.

Rental income

If you have a property in the UK or overseas that could be used to gain rental earnings, it could be worth considering this as an option to help boost your monthly income. While many people moving abroad will sell their UK property to gain a lump sum, in the case of the more stringent EU countries, the income you would gain from renting may be more likely to secure your visa.

However, when considering renting your property, remember that you will be liable to pay income tax on your earnings. If you are living in and renting your property from one country, you will pay income tax based on that country’s tax system. Sadly, this is not necessarily the case if you are renting your property in one country and living in another. This can be problematic if you are left facing double taxation, which means you will pay tax in two countries and thus could potentially wipe out an additional income that would have secured your EU visa.

Thankfully, in countries that share a double tax treaty with the UK, this problem is avoided. Instead of paying tax on your income twice, you will be able to take advantage of the double tax agreement made between the two countries to allow them to share the tax, so you will only have to pay the equivalent of one tax bill.

Moving forward

While the options above may work for some, not every retiree will be able to use these methods to secure an EU visa. If you are unsure of how to move forward, consider contacting an independent financial adviser with expertise in the taxes of the country in which you plan to retire. With their help, you should be better placed to assess your personal finances and make the decisions to help you move closer to achieving your goals.

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