Find your dream retirement destination in the Mediterranean
Back in the May issue of Moneywise Magazine, we reported on some of the many pitfalls of retiring abroad - from healthcare problems to financial difficulties and property scams.
But with the right advice and some careful planning, the dream doesn't have to end in disaster. So here's our lowdown on some glorious sun-soaked destinations.
The small but perfectly formed south European island of Malta is one of the most popular destinations for UK retirees. "It's safe, secure, and very British," says David Creffield, author of The International Retirement Directory. "There's a very low crime rate."
And with a subtropical Mediterranean climate, featuring mild winters and hot summers, the weather is a big draw - as is the language."Almost everyone speaks English," says Derek Wells, founder of luvmalta.co.uk and a representative for Maltese estate agents.
Property prices on the island vary considerably. A simple two-bedroom apartment in the south costs around €90,000 (£80,400), while a villa in the capital city Valletta could set you back €3 million (£2.6 million).
The property market has struggled over the past two years. According to Global Property Guide, Malta's overall house price index dropped by 1.02% over the year to the third quarter of 2010.
However, prices are starting to stabilise and Wells says the market has not seen the sort of peaks and troughs associated with the UK property market.
Of course, one major consideration for those looking to retire abroad is healthcare. As with all EU countries, Malta has an agreement with the UK that any retirees who reside there will have access to its healthcare system, one which Wells says is very advanced.
"In the past couple of years, a state-of-the-art hospital has been built and the World Health Organisation has ranked Malta's health service fifth in the world."
One-way flights from the UK typically cost around £100 in peak season (travelling with budget airlines and checking in one item of luggage), and around £50 off-peak.
Tax on pensions income: 15% flat rate
Cyprus is another favourite for British retirees, not least because purchasing property in the country is impressively straightforward. The entire process can take just 24 hours in some cases, says David Copeland, director of Cyprus investment specialists 1 Cyprus Property.
But it pays to get specialist advice. Some buyers have lost out by failing to realise they haven't got the title deeds or that there's an outstanding mortgage on the land. "Make sure you use a bar-registered property lawyer," Copeland adds.
Property prices in Cyprus have fallen by as much as 30% since the credit crunch, according to the Global Property Guide. But Copeland says the market is improving. Apartments cost around €120,000 to €150,000 (£105,000 to £132,000), depending on area, while houses range from €350,000 to €650,000 (£308,000 to £570,000).
However, it's the tax breaks afforded to residents that are a real draw for UK pensioners, with tax of just 5% on pension income. Living costs can be expensive, though, says Copeland. "Go for local produce where possible."
With the same reciprocal agreement as Malta, the healthcare system is slightly better than that of the UK and is accessible for British retirees.
One-way flights from the UK cost on average between £100 and £120 in peak time (using budget airlines and checking in one item of luggage), and between £50 and £55 off-peak.
Tax on pensions income: 5%
Gibraltar has become more desirable as a retirement destination for Brits as transport links between Gibraltar and the UK have improved. Direct flights now take off from London, Manchester and Liverpool, taking around two and a half hours.
"Once you arrive at the airport in Gibraltar you're only 10 minutes away from everything because the place is so small," says Siobhean Gribbin, a spokesperson for estate agent KS Sotheby's in Gibraltar.
The biggest attraction of Gibraltar, adds Gribbin, is the fact it is so similar to the UK. "Everyone speaks English, all the favourites from the high street are here, and even the policemen wear the traditional British uniform," she says.
Living costs such as energy bills are higher, but with a warmer climate - the average temperature is 29°C in August and 10°C in January - there's little need for heating.
Gribbin says the healthcare system is also similar to the UK in quality, and UK retirees have full access to it.
The size of the territory, coupled with the fact that it's an industry hub, specifically for the online gaming industry, means there's always demand for housing so both the buy-to-let market and the residential property market are strong.
Prices vary but are generally quite expensive: €140,000 (£123,000) could buy you a reasonably sized two-bedroom apartment, while larger villas can cost up to €4 million (£3.5 million).
But pensioners aged over 60 benefit greatly in Gibraltar as there's no tax on pension income. There's also no capital gains tax or inheritance tax (IHT) to worry about (but it's worth checking with the UK Pensions Service, as there has recently been a pensions dispute between Gibraltar and the UK).
One-way flights from the UK cost on average between £70 and £100 in peak time (using budget airlines and checking in one item of luggage), and between £35 and £40 off-peak.
Tax on pensions income: None
Year-round sunshine and a good healthcare system continue to entice retiring Britons to Spanish shores. Little wonder then that Spain topped Standard Life's poll of retirement hotspots earlier this year.
Pensions in the country are taxed at a flat rate of 15%. Be aware, though, that Spain does have IHT and it can cause problems as assets do not pass automatically to a spouse tax-free. Widowed partners may have to pay up to 34% in IHT on the death of their spouse.
The Spanish property market suffered heavily in the global recession and in some areas prices continue to fall. According to the Global Property Guide, average house prices fell 4.46% during the year to February 2011. They were down by 5.2% in large cities and by 6.7% on the Mediterranean coast.
However, prices along the coast are still the most costly. Rhona Hutchinson, managing director of relocation specialists Retirement Spain, says prices for an apartment start at €60,000 (£50,000); properties inland are cheaper.
"It's fair to say only the properties being offered for sale sometimes 50% cheaper than they were 10 years ago are actually selling," adds Terry Wood, director of Relocate to Spain.
Meanwhile, the rental market is busier than ever and rents are lower than they were 10 years ago in saturated areas. "Now is a very good time to purchase a bargain," he says.
One-way flights from the UK cost on average between £60 and £75 in peak season (using budget airlines and checking in one item of luggage), and between £40 and £50 off-peak.
Tax on pensions income: 15% flat rate.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.