Yahoo Finance Money Makeover: ‘How do I retire abroad but keep my £100,000 in Premium Bonds?’
Martin Shirran, 70, and his wife Marion, 55, are British expats who are spending their retirement in Malaga, Spain.
Despite moving to the country 22 years ago, they kept their UK bank accounts so they can receive their state pension and winnings from their Premium Bonds. But now their UK bank account is being closed as Britain has left the EU. They do not know what to do with their savings.
Between them, they have £100,000 in Premium Bonds, which paid them winnings of nearly 3pc in the past year, but NS&I will only allow prizes to be paid into an account with a UK sort code. They also have another £30,000 in cash in their bank account.
Mr Shirran is retired and receives a UK state pension worth £700 a month. He has a second state pension in Spain that pays £700 a month into a Spanish bank account. He is worried about getting hit with extra taxes if his state pension is paid directly into a Spanish bank account, and wants to minimise the tax he and his wife have to pay.
Ms Shirran is still working part-time to run their weight loss business, Oxford Therapeutics, which earns them £24,000 to £36,000 a year. They own their home and the adjacent property, which they rent out for €700 (£600) a month. They do not have mortgages and want to manage their income in both countries to be able to retire as comfortably as possible.
Katie Brain, consumer banking expert at Defaqto
Unfortunately, Brexit has resulted in many banks withdrawing their current accounts for non-UK residents. This is because current “passporting” rules set to end on Dec 31 mean each UK bank will need to have separate authorisation in every EEA country they want to operate in, so most banks have decided to withdraw the availability of their current accounts to non-UK residents.
There is only one high street bank, HSBC, that will allow customers to open a current account if they live in the EU. Some providers will offer accounts to EU residents, but these accounts have a high minimum income or require investment to qualify for the account and charge a higher monthly fee.
Monese and Revolut’s prepaid accounts will allow EU residents to open an account, but they do not offer all facilities and can only be operated online or via a mobile app. There can be monthly and transaction fees for these types of account.
Jason Porter, director at Blevins Franks
Mr and Mrs Shirran could consider a GB sterling “offshore” or “expatriate” account, perhaps held through a bank in the Isle of Man or similar. These exist within the UK sort code system and are able to accept Bacs payments – a requirement to receive any winnings from NS&I. These accounts require a minimum balance (as set by each institution), but the current savings should be in excess of these.
The UK state pension could be received this way. It could also be paid to a GB sterling account held with a Spanish bank, or even paid by the UK government in euros to a Spanish bank (though the monthly sum will fluctuate as the exchange rate moves).
It is important Mr and Mrs Shirran understand their tax position as Spanish tax residents. While the UK state pension and Premium Bond winnings are not taxable in the UK, even though they have been received there, they are both taxable in Spain.
It’s important to consider that in the context of the returns: the Premium Bonds might deliver roughly 3pc in winnings this year, there is no guaranteed annual return. Also, the fact this and the rental and pension income are taxable in Spain means there is little tax efficiency in their set-up.
They currently have a relatively healthy income of €4,300 to €5,300 per month (including the projected Premium Bond winnings), but this would probably halve when Mrs Shirran retires. They may well need to access some of their capital at this point to supplement their living expenses. Having assets you can draw down upon across both the income and the capital (gradually) – in a tax efficient way – might be the best thing for them.
One option might be to utilise the Premium Bond funds for an investment in a single-premium offshore life assurance policy, invested across a well-diversified portfolio. In Spain, any tax on profits is deferred until a withdrawal is made, which could be when Mrs Shirran chooses to retire.
Another option is to sell the rental apartment and use the proceeds to invest it in one of these policies. While the rental income is currently useful, they may need to have access to a greater sum in retirement when they no longer have income from their business.
David Denton, consultant at Quilter Cheviot
Popular tax-free savings wrappers in the UK, such as Isas, NS&I savings certificates and Premium Bonds, do not enjoy the same tax advantages in Spain. Interest, dividends, capital gains and winnings on these popular British investments are all chargeable in Spain, at progressive rates of up to 26pc, even if the returns are not brought into the country.
Expatriates who prefer not to hold all of their wealth in Spain sometimes hold savings accounts in the British Crown Dependencies, the closest being the likes of Jersey, Guernsey or the Isle of Man.
Popular mainstream vehicles for those wishing to invest in the stock market are “offshore” unit-linked insurance policies.
Insurance companies in Luxembourg and the Republic of Ireland which can freely operate across Spain and other EU countries have designed such products in order for them to fit in with the Spanish tax and legal system.
Instead of tax becoming payable on an annual basis as profits arise, there is no tax liability until an encashment is made.
Additionally, they reduce reporting requirements for Spanish residents who hold investments overseas, and they are also tax efficient for those who return to the UK.
Spanish inheritance tax shouldn’t be overlooked, nor should wealth tax, which Mr and Mrs Shirran may be unaware of, given its absence from the UK. These taxes have an additional level of complexity, as the 17 autonomous communities that make up Spain do not have a consistent approach in terms of the rates that apply.
And perhaps surprisingly there is no double tax treaty between the UK and Spain for inheritance tax, so when a liability emerges from a death in both countries, without significant cross border expertise there can be a lot to lose.
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