Expat Retirement Planning: Pensions, Tax and Estate Rules

Retiring abroad is a tax and legal project, not just a move

Most people planning to retire in another country think first about cost of living and climate. The decisions that cost the most when they go wrong are different: which country taxes your pension, whether your pension can legally follow you, what happens to your savings if your currency moves, and whose law applies to your estate. This guide walks through those four questions in the order most people need to answer them.

1. Where are you taxed?

The starting point is tax residency, which each country defines in its own way, usually by days spent there and where your home and family are. If two countries both claim you, a tax treaty between them normally contains a tie-breaker that decides which one is your country of residence.

Citizenship can also matter. The United States taxes its citizens and green card holders on worldwide income wherever they live. Most other countries tax on residence only, so leaving usually ends their claim, apart from tax on certain domestic income. A US citizen retiring abroad therefore files in both places and relies on the foreign tax credit and treaty rules to avoid paying twice. The foreign earned income exclusion does not help here, because it covers wages, not pensions or investment income.

Two reporting rules catch many retirees out. US citizens abroad must file an FBAR when the combined value of their foreign financial accounts exceeds 10,000 dollars at any time in the year, and Form 8938 under FATCA has its own thresholds, which are higher for people who live abroad. The penalties are for failing to report, not for owning the accounts, which is why accurate filing matters more than the structure of the accounts.

2. Can your pension follow you?

It depends on the type of pension and where it is paid from.

• State pensions. The US has totalization agreements with about thirty countries, which prevent paying social security tax twice and let people combine work histories in two countries to qualify for benefits. Social Security can generally be paid abroad, though there are restrictions on payments to residents of a small number of countries. The UK State Pension can be claimed abroad, with a full new pension generally requiring 35 qualifying years and a minimum of 10. The annual increase, however, applies only in certain places, including the European Economic Area, Switzerland and countries with a reciprocal agreement such as the United States. Retirees in countries such as Australia, Canada or South Africa have seen their UK pension frozen at the level it was first paid.
• Private and workplace pensions. Many can be paid to an overseas bank account, but how the payment is taxed depends on the treaty between the paying country and your new home. Many treaties give the right to tax private pensions to the country where you live, while a saving clause lets the United States continue to tax its own citizens.
• Healthcare. Medicare generally does not cover care outside the United States, so US retirees abroad need local or international health cover.

3. Should you transfer a pension overseas?

Overseas pension transfers are heavily marketed and heavily regulated. In the UK, a Qualifying Recognised Overseas Pension Scheme (QROPS) allows pension savings to move to an approved overseas scheme. Since March 2017 a 25 percent overseas transfer charge applies unless the transfer meets specific exemptions, such as the scheme being in the country where you live. The lifetime allowance, which used to be the main concern for large pots, was abolished from April 2024 and replaced for transfers by an overseas transfer allowance set at the previous lifetime allowance level. Articles that describe lifetime allowance charges as a current risk are out of date.

Before transferring, ask what you gain and what you lose. A transfer can reduce currency mismatch and simplify administration, but it can also give up valuable guarantees in a defined-benefit scheme, and it may bring you into a regime where the pension is taxed differently. A regulated adviser who is qualified in both countries is worth the fee for decisions of this size.

4. Currency, inflation and the order of withdrawals

• Match currencies. If you will spend in euros, holding a large share of your savings in dollars exposes you to exchange-rate swings. Keeping several years of spending in the currency you will use is a common way to reduce that risk.
• Sequence risk. Poor markets in the first years of retirement hurt more than the same fall later. A cash buffer for early years lets you avoid selling investments at a low.
• Withdrawal order. Which accounts to draw from first changes your lifetime tax. The right order depends on how each account is taxed in each country, so model it with both tax systems in view.

5. Estate planning across legal systems

Countries differ on who inherits. Common-law countries such as the United States and the United Kingdom generally allow broad freedom to leave assets as you choose. Many civil-law countries, including much of continental Europe, reserve fixed shares of an estate for children or a spouse, known as forced heirship. Within most of the European Union, the Succession Regulation (650/2012) lets you choose the law of your nationality to govern your estate, which can resolve some of these conflicts, though Denmark, Ireland and the United Kingdom did not take part in it.

Practical steps include keeping a will in each country where you own property, checking that each will works with the other, and confirming how inheritance tax applies to assets held in each place. For UK-connected individuals, the long-standing "non-domiciled" tax regime was replaced by a residence-based system from April 2025, so older guidance on UK inheritance tax and non-dom status needs checking against current rules.

A sensible order of work

1. Decide the destination shortlist and confirm the visa or residency route for retirees.
2. List every pension, account and property, with its country and currency.
3. Establish which country will tax you and check the relevant treaty articles for each income type.
4. Confirm how each state and private pension is paid abroad, including indexation.
5. Only then consider a pension transfer, and take advice from someone regulated in both countries.
6. Arrange health cover, wills and powers of attorney in the countries involved.

Frequently asked questions

What happens to my home-country pension if I retire permanently abroad?

In most cases it keeps being paid to you, either to a local account or an overseas one. What changes is how it is taxed and, for some state pensions, whether it increases each year.

How does FATCA affect my retirement accounts abroad?

It requires foreign banks to report accounts held by US persons to the US tax authorities, and it requires US persons to report certain foreign accounts themselves. Holding an account is not wrongdoing, but failing to report one can attract significant penalties.

Can I avoid capital gains tax by moving to a low-tax country?

Not automatically. Some countries tax residents on worldwide gains, some tax gains for a period after you leave, and the United States taxes citizens wherever they live. The result depends on both your old and new country, so check before you sell.

What is forced heirship?

It is a rule in many civil-law countries that reserves part of an estate for specific relatives, such as children, regardless of what the will says. It matters if you own property in such a country.

Sources and further reading

• US Internal Revenue Service, material on FBAR, Form 8938 and the foreign tax credit, on irs.gov.
• US Social Security Administration, international programs and totalization agreements, on ssa.gov.
• UK Government, State Pension for people living abroad and the rules on overseas pension transfers, on gov.uk.
• European Union, Regulation (EU) No 650/2012 on succession, on eur-lex.europa.eu.

Tax and pension rules change often and depend on your personal facts; check the sources above and consult a qualified cross-border adviser before acting. This article is general information, not tax, legal or financial advice.