The promise of year-round warm weather and a lower cost of living can be a powerful lure for retired people. That can mean relocating lock, stock and barrel or keeping on an Irish home and spending six or nine months in the sunnier clime of their choice.
But it’s not quite as straightforward as moving down the road in Ireland. Different income and property tax regimes have to be taken into account for starters. Then there are inheritance laws to contend with. And that’s before you actually buy the property.
The first thing to consider is how your Irish pension income will be taxed after a full-time move abroad. If you are in receipt of an Irish occupational pension from a private-sector employer, it will be taxed in the country that you are tax resident in if you are both non-resident in Ireland for tax purposes and resident in a country that has a double taxation agreement with Ireland.
You are non-resident for tax if you spend fewer than 183 days in Ireland during a tax year and fewer than 280 days across two consecutive tax years. It’s worth pointing out that every country in the EU has a double taxation agreement with Ireland. These agreements mean that once tax is paid in one jurisdiction it is not payable in the other.
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If you withdraw money from an Approved Retirement Fund (ARF) or a vested Personal Retirement Savings Account (PRSA), you will be charged tax at source here in Ireland regardless of your residence status. The same applies to public service pensions as well as to rental income from an Irish property.
The contributory State pension is different and is taxed in the country where you are resident.
Buying abroad
Once you’ve got your head around the potential tax implications, there is the small matter of acquiring your place in the sun. Spain, Portugal and France tend to be the countries of choice for Irish people, mainly due to proximity, ease of air access and climate, wildfires and heat domes notwithstanding.
Buying property in Spain should be relatively straightforward, as long as you follow a few basic ground rules, according to Joseph MacDonough, managing director of Spanish Property Ireland.
“You need to know what you’re looking for, the area you’re looking at and the budget you’re working with,” he advises. “Spain is quite a big country, so you need to have a good idea of where you want to buy. You also need to know what facilities you want to be close to and how close. It’s the second biggest investment of your life and you can’t just walk into it. You can go to an estate agent over there, get a good sales talk, the property looks very good, but you might regret it. You need to hire an English-speaking Spanish lawyer, and you need to be able to spend a couple of days in Spain viewing the properties, the areas and the facilities.”
Buyers also have to be prepared for hefty deposits. “You need a 33 per cent down payment,” says MacDonough. “That’s the norm but you could strike a deal with the seller for less.”
That’s not all. “When you see the price of a property, the first thing to do is add 12 to 12.5 per cent on to the price to cover legal fees and taxes and so on. If you see a property for sale for €100,000, you need to budget for €112,000 or €113,000.”
Buying a property in Portugal is quite similar to the process in Ireland, according to Michael O’Connor, managing director of OCM Portugal, the Portuguese property division of chartered surveyors O’Connor Murphy. The firm specialises in high-end properties in Quinta Do Lago and similar areas, but the general principles apply to property purchase regardless of price.
“We’ve been working out there for the last 30 years,” O’Connor says. “A lot of what we do is assisting people to buy. We know the market, we know the agents, we know what our clients want and we help them to buy. And if they buy a property that needs renovation, we know builders, quantity surveyors, engineers and so on. We make it all as simple as possible.”
He explains that there is no centralised property listing service like MyHome.ie in Portugal. “A lot of stuff is multi-listing. You might find three apartments at three different prices from three different agents. We come in and value it for them. We also deal with an Irish lawyer who has been working out there for over 30 years.”
The deposit is considerably lower than Spain at just 10 per cent and is subject to negotiation. “People need to factor somewhere in the region of an additional 9 per cent to 10 per cent to cover taxes and other closing costs,” O’Connor adds.
O’Connor and MacDonough report healthy demand for properties in the two countries, with Portugal becoming “a little calmer” over the past year.
In both countries, you can expect to pay annual local property taxes based on a percentage of the value of the property. The same applies in France where they can be very expensive, at up to €50 per square metre in some regions and municipalities.
Estate planning
Finally, there is the question of estate planning. In many European countries the law requires estates to be divided equally between surviving descendants, resulting in complicated dilution of asset ownership.
Paul Kenny, programme leader with the Retirement Planning Council and former pensions ombudsman, explains that Irish people can avoid such outcomes. “An EU Regulation of 2012 which was transposed into Irish law in 2015 means that Irish people can dictate in their will that the estate is to be dealt with in accordance with Irish law.”
