Retiring in Europe

[Free_at_49]

Has anybody from Canada or US retired in the European Union and cares to share their experience?

Living off mutual fund income from Vanguard. Income still taxable in the US but EU countries have a high VAT tax (consumption tax) which means you're effectively double-taxed, sort of. Does Vanguard require you to have a US address?

Healthcare, I'm 50ish Canadian living in the US, so I'd have to buy insurance in EU... any experiences with that?

Anybody cares to brainstorm?

 

[Xman]

I have a European wife, and she and the kids spend summers there. The kids are dual passport. We sometimes think of retiring there, but I'm scared of the financial consequences. Not even getting into the VAT, all my income will be passive, so I think I'd have to pay income tax on all of it in both Europe and the States. My understanding is that the $80k or so income exclusion for expats only applies to earned income abroad (If anybody knows whether this is correct or not, I'd love to hear). I think the best we can do is to spend less than 50% of time there so our tax base doesn't change from the US.

Xman

 

[Alan]

You will need to consult a tax lawyer for what you propose. Wiki has an article you may want to read to get an idea of the possible issues.

Double taxation - Wikipedia, the free encyclopedia

I am retired in the USA with income in both the UK and the USA. The UK income is from a pension and also UK bank interest payments. I've been receiving both for about 4 years now. As soon as it started the UK IRS immediately began taxing at source and sent me a letter to my US address asking for all my other sources of income so they could tax that as well.

What I had to do was apply to the US IRS for a certificate stating that I was a US resident and tax payer, and then file that certificate using a special form with the UK IRS. From that point on the UK IRS stopped taxing my UK income (refunded what they had taken over the 2 months it took to sort out). I declare all my UK income on my US tax returns and pay US taxes on it.

It is similar with the bank - I had to file forms stating that I was a US resident and paying US taxes (otherwise they withhold UK tax).

The situation may well be quite different being a resident in a European country with US income which is why I say you need to consult a specialist for your circumstances.

 

[Peter]

I agree with Alan that you should consult a specialist to advise on your particular situation. In general, though, if the country you live in has a tax treaty with the US, you will avoid double taxation.

I do know that my brother, a dual US/UK citizen, returned to the UK some years ago. He submits a US tax return every year, which shows no tax payable. Of course he does pay UK tax.

List of countries with tax treaties here:

United States Income Tax Treaties - A to Z

Peter

 

[meaglin]

Retiring in EU

Spent 3 months there last year, did a home exchange for most of it so not the same as living full time but not in hotels either. What I can tell you for sure is it is more expensive. Add 25% +/- to the USD to just about everything you can think of needed to live. You may be able to offset that some by eliminating your car, car insurance just depends on where you live. I have no experience with purchasing their insurance, but do know about groceries and daily expenses. Was a trip of our lifetime and well worth it, but if I had to pay rent on top of what we spent it would have been very expensive.

 

[Free_at_49]

I have no European income so I'm not taxable there. But when spending your US after-tax money in EU you're indirectly taxed again through the consumption tax, 5$/gallon gasoline, etc. So, even though the cost of living is about the same in US vs EU, spending US after-tax income in EU makes you feel poorer. Also I'm forfeiting my free Canadian healthcare and would have to buy private insurance.

 

[FIREd]

We might have to spend a few years in Europe after retiring, mostly to take care of my aging parents who live there. Aside from a small savings account, all of our money is in the US. Because of tax considerations, I would like us to maintain our residence in the US. So, my sister and I might have to take turn taking care of our parents so that DW and I can spend at least 6 months a year in the US. If we were to retire permanently in Europe though, we would probably take our money with us. It would make it simpler to deal with taxes and exchange rate volatility.

As far as the cost of living is concerned, the truth is that living in Europe does not have to cost an arm and a leg. If you want to have an American lifestyle while living in Europe, it's going to cost you dearly, there is no doubt. But if you are willing to adjust your lifestyle and live like the locals, there are many ways you can keep your expenses down. For example, yes, gas is more expensive in Europe. But because cars are smaller and more gas efficient and because distances traveled are generally shorter, you might not necessarily spend more on gas there than you do here.

 

[Alan]

As far as the cost of living is concerned, the truth is that living in Europe does not have to cost an arm and a leg. But you really have to think outside the box and adjust your lifestyle. If you want to have an American lifestyle while living in Europe, it might bankrupt you. For example, yes gas is more expensive in Europe. But because cars are smaller and more gas efficient and because distances traveled are generally shorter, you might not necessarily spend more on gas there than you do here.

One thing we noticed after moving to the USA is that we spent as much on gas here as when we lived in England even though gas was 4 times more expensive. Reason is just what you said. As family of 4 we owned one compact 3 door car (a 2 door hatchback) with excellent gas mpg. We lived under 6 miles from work and I car-pooled with 3 other guys - it was the norm, most everyone did it.

The last few times we've been to England we didn't hire a car - buses and trains work great. We have 6 weeks planned this summer and will do without a car again. Next year we plan on staying 6 months, in Guisborough, a town we know very well (lived there from '79 - '85). DW has already researched prices and we can rent a fully furnished 2 bed house close to the main street for ~$1,000 / month. Should we want a car from time to time we'll hire one otherwise public transportation will do.

 

[Free_at_49]

We might have to spend a few years in Europe after retiring, mostly to take care of my aging parents who live there. Aside from a small savings account, all of our money is in the US. Because of tax considerations, I would like us to maintain our residence in the US. So, my sister and I might have to take turn taking care of our parents so that DW and I can spend at least 6 months a year in the US. If we were to retire permanently in Europe though, we would probably take our money with us. It would make it simpler to deal with taxes and exchange rate volatility.

...

What is the tax advantage of having a US address? I'm debating whether to sell my US home.

I too would like the option of taking my money with me, but 50% is in IRA.... taking it out in a single withdrawal would mean very high tax ?

 

[Trek]

Saying Europe is very expensive 'cause you vacationed in Paris (and it is there) is like saying the US is super expensive because you've only been to Manhattan. You can't paint the EU with a broad brush anymore than you can the US.

Plenty of places within the EU are affordable and often downright cheap to live. And you can often mitigate some of the more expensive aspects especially if you're already ER'd.

First thing you'd need to do as a Canadian is figuring out where you'd like to live and if you can get a residence visa for there (or perhaps you have an EU passport already). I'm an American retired to the EU and my cost of living is a small fraction of what it was in the US (hence why I originally came here).

Feel free to PM me if you want more info about my cost of living or places around Europe I would recommend you look. Everyone else here as already heard it several times over, so I won't bore them again.

 

[Free_at_49]

Saying Europe is very expensive 'cause you vacationed in Paris (and it is there) is like saying the US is super expensive because you've only been to Manhattan. You can't paint the EU with a broad brush anymore than you can the US.

Plenty of places within the EU are affordable and often downright cheap to live. And you can often mitigate some of the more expensive aspects especially if you're already ER'd.

First thing you'd need to do as a Canadian is figuring out where you'd like to live and if you can get a residence visa for there (or perhaps you have an EU passport already). I'm an American retired to the EU and my cost of living is a small fraction of what it was in the US (hence why I originally came here).

Feel free to PM me if you want more info about my cost of living or places around Europe I would recommend you look. Everyone else here as already heard it several times over, so I won't bore them again.

Thank you, I agree about cost of living in EU. I've lived in Western Europe for many years in the past, but now considering a permanent move. I know there are some very inexpensive places in EU, though I'm not necessary looking for the cheapest. I'm also annoyed that I'll be taxed forever in the US, even if I don't live here or use any of the public goods that taxes pay for.

Also, I've paid into the Canadian health system, which I won't be using, so I also wish there were international treaties of reciprocation (as they have between member states in the EU).

 

[FIREd]

What is the tax advantage of having a US address? I'm debating whether to sell my US home.

If you leave your money in the US, the advantage of remaining a US resident for tax purposes might depend on where in the EU you plan on retiring (each EU country has its own tax code with its own quirks).

In our case:

1) As US tax residents, we would pay US income tax (almost nothing based on the current tax code) and the EU VAT (only for the 6 months per year spent there). It would amount to a fairly low tax rate but, maintaining a tax residence in the US and effectively living with one foot on each continent would be more expensive (2 homes to maintain).

2) As EU tax residents (living in Europe full time), we would have to pay EU income tax + US income tax (no double taxation, but still, more hassle), plus the EU VAT, plus a wealth tax based on where my parents live. It would amount to a substantially higher tax rate for us.

Now, if we moved our money to Europe and moved our tax residence there, we would still be subjected to the EU+US income tax, VAT and wealth tax, but there are 2 advantages: 1) we would be considered expats by the US and would qualify for the expat exclusion on foreign income which means that we would pay no US income tax and 2) we could invest our money in a way that takes advantages of tax loopholes in our country of residence, hence minimizing our income tax liability. For example, dividends and interests might be taxed heavily in Europe, but real estate often has special tax exemptions. Annuities also have interesting tax advantages in some countries. So, if your income is mostly interests and dividends from your investment accounts in the US, and you are a EU resident, you might pay a lot more in taxes than if your money is invested in annuities and real estate that take full advantage of exemptions in the local tax code.

I too would like the option of taking my money with me, but 50% is in IRA.... taking it out in a single withdrawal would mean very high tax ?

Personally, I have always arranged my portfolio to keep it "mobile", so most of my money is in taxable accounts. If you have substantial amounts of money in IRAs, you may not have that many options.

 

[Free_at_49]

If you leave your money in the US, the advantage of remaining a US resident for tax purposes might depend on where in the EU you plan on retiring (each EU country has its own tax code with its own quirks).

In our case:

1) As US tax residents, we would pay US income tax (almost nothing based on the current tax code) and the EU VAT (only for the 6 months per year spent there). It would amount to a fairly low tax rate but, maintaining a tax residence in the US and effectively living with one foot on each continent would be more expensive (2 homes to maintain).

2) As EU tax residents (living in Europe full time), we would have to pay EU income tax + US income tax (no double taxation, but still, more hassle), plus the EU VAT, plus a wealth tax based on where my parents live. It would amount to a substantially higher tax rate for us.

Now, if we moved our money to Europe and moved our tax residence there, we would still be subjected to the EU+US income tax, VAT and wealth tax, but there are 2 advantages: 1) we would be considered expats by the US and would qualify for the expat exclusion on foreign income which means that we would pay no US income tax and 2) we could invest our money in a way that takes advantages of tax loopholes in our country of residence, hence minimizing our income tax liability. For example, dividends and interests might be taxed heavily in Europe, but real estate often has special tax exemptions. Annuities also have interesting tax advantages in some countries. So, if your income is mostly interests and dividends from your investment accounts in the US, and you are a EU resident, you might pay a lot more in taxes than if your money is invested in annuities and real estate that take full advantage of exemptions in the local tax code.



Personally, I have always arranged my portfolio to keep it "mobile", so most of my money is in taxable accounts. If you have substantial amounts of money in IRAs, you may not have that many options.

"mobile"? You never had a 401K? My portfolio is 50% IRA from 401K rollovers, so I doubt I can move it to another country. So it seems better for me to maintain a US tax residence and simply remain a permanent visitor in EU? Can you use a friend's address in the US as tax residence instead of maintaining a 2nd house?



//

 

[FIREd]

"mobile"? You never had a 401K? My portfolio is 50% IRA from 401K rollovers, so I doubt I can move it to another country. So it seems better for me to maintain a US tax residence and simply remain a permanent visitor in EU? Can you use a friend's address in the US as tax residence instead of maintaining a 2nd house?



//

I worked for only one company that offered a 401K (which I later rolled over to an IRA) and I have something like $17K in it. That's it. Because of our income, I can't make deductible contributions to an IRA. DW has a larger 401K (which she maxes out each year) but still, only about 12% of our annual savings go to tax-deferred accounts. 401Ks + IRAs only represent 25% of our retirement savings and that number goes down each and every year.

Note that for you to remain a US tax resident, you have to live in the US at least 6 months per year (So you cannot live in Europe full time and remain a US tax resident). So unless your friend is willing to let you sleep on his sofa when you are stateside, you will have to have your own place here.

 

[Free_at_49]

I worked for only one company that offered a 401K (which I later rolled over to an IRA) and I have something like $17K in it. That's it. Because of our income, I can't make deductible contributions to an IRA. DW has a larger 401K (which she maxes out each year) but still, only about 12% of our annual savings go to tax-deferred accounts. 401Ks + IRAs only represent 25% of our retirement savings and that number goes down each and every year.

Note that for you to remain a US tax resident, you have to live in the US at least 6 months per year (So you cannot live in Europe full time and remain a US tax resident). So unless your friend is willing to let you sleep on his sofa when you are stateside, you will have to have your own place here.

With 50% IRA, my portfolio seems stuck in US. The other 50% is in dividend-heavy taxable accounts.

So, living full-time in EU as an EU tax resident with US-borne investment income, I'd have both US+EU tax returns and I'll pay the greater of the 2 taxes but not both.

It looks like I'd be penalized for living in EU, even if they rebate VAT taxes.


.

 

[Free_at_49]

I worked for only one company that offered a 401K (which I later rolled over to an IRA) and I have something like $17K in it. That's it. Because of our income, I can't make deductible contributions to an IRA. DW has a larger 401K (which she maxes out each year) but still, only about 12% of our annual savings go to tax-deferred accounts. 401Ks + IRAs only represent 25% of our retirement savings and that number goes down each and every year.

Note that for you to remain a US tax resident, you have to live in the US at least 6 months per year (So you cannot live in Europe full time and remain a US tax resident). So unless your friend is willing to let you sleep on his sofa when you are stateside, you will have to have your own place here.

They have the same residence requirement in Canada, they call it "substantial presence"...

If one wishes to spend their life traveling and NOT be a full-time resident of any one country, are tax laws in Western countries prohibiting that ? ? ? Are we free to park our investment in the US or EU and go live & travel and spend our income wherever we want?


//

 

[george76]

If you leave your money in the US, the advantage of remaining a US resident for tax purposes might depend on where in the EU you plan on retiring (each EU country has its own tax code with its own quirks).

In our case:

1) As US tax residents, we would pay US income tax (almost nothing based on the current tax code) and the EU VAT (only for the 6 months per year spent there). It would amount to a fairly low tax rate but, maintaining a tax residence in the US and effectively living with one foot on each continent would be more expensive (2 homes to maintain).

2) As EU tax residents (living in Europe full time), we would have to pay EU income tax + US income tax (no double taxation, but still, more hassle), plus the EU VAT, plus a wealth tax based on where my parents live. It would amount to a substantially higher tax rate for us.

Now, if we moved our money to Europe and moved our tax residence there, we would still be subjected to the EU+US income tax, VAT and wealth tax, but there are 2 advantages: 1) we would be considered expats by the US and would qualify for the expat exclusion on foreign income which means that we would pay no US income tax and 2) we could invest our money in a way that takes advantages of tax loopholes in our country of residence, hence minimizing our income tax liability. For example, dividends and interests might be taxed heavily in Europe, but real estate often has special tax exemptions. Annuities also have interesting tax advantages in some countries. So, if your income is mostly interests and dividends from your investment accounts in the US, and you are a EU resident, you might pay a lot more in taxes than if your money is invested in annuities and real estate that take full advantage of exemptions in the local tax code.



Personally, I have always arranged my portfolio to keep it "mobile", so most of my money is in taxable accounts. If you have substantial amounts of money in IRAs, you may not have that many options.

Could I clarify something? The expat exclusion on foreign income does not apply to income from capital gains, dividends or interest earned from sources in the US, right? And it has to be earned income from a foreign country. Thus, it can't even be interest or dividends from a foreign country.

So as a retiree, only couldn't really take advantage of this, correct? One has to work?

 

[FIREd]

Could I clarify something? The expat exclusion on foreign income does not apply to income from capital gains, dividends or interest earned from sources in the US, right? And it has to be earned income from a foreign country. Thus, it can't even be interest or dividends from a foreign country.

So as a retiree, only couldn't really take advantage of this, correct? One has to work?

You are right. But I was talking about our particular case, and I should have made it clear that we don't exclude the possibility to keep working at least part time to cover some or all of our expenses even after moving to Europe (we might not be fully FIREd by the time my parents start needing help). So the expat income exclusion could still come into play for us.

 

[oma]

Spent 3 months there last year, did a home exchange for most of it so not the same as living full time but not in hotels either. What I can tell you for sure is it is more expensive. Add 25% +/- to the USD to just about everything you can think of needed to live. You may be able to offset that some by eliminating your car, car insurance just depends on where you live. I have no experience with purchasing their insurance, but do know about groceries and daily expenses. Was a trip of our lifetime and well worth it, but if I had to pay rent on top of what we spent it would have been very expensive.

Home exchange sounds interesting. Any more information/websites?

 

[oma]

Home Exchange,Vacation Home Exchange,Home Swapping,Vacation Home Swapping

risky? - could give those thinking of retiring permanently in Europe a chance to test drive the experience

 

[Free_at_49]

[FONT=DejaVu Sans, sans-serif]How's everybody? I've been spending some time in Europe.[/FONT]


[FONT=DejaVu Sans, sans-serif]So far I’ve stayed with friends & relatives, and financially I do exactly the same thing as when I’m in the US: I spend with credit cards and at the end of the month I pay my bill through online banking. The only difference is that the credit card bill shows purchases in Euros and conversion to USD. I have some neighbors check on my house, fetch my mail and open it when necessary. My house and car are wasted while I’m gone, and traveling is expensive so it pays to stay in one place. But after 3 months in Europe you risk becoming a tax resident (or be fined if not carrying an EU passport). When you go through airports they swipe your passport through a computer so they know when & where you are. It feels like an international police state. It makes me want to go live on a remote island, maybe I’m just dreaming...[/FONT]

 

[nun]

[FONT=DejaVu Sans, sans-serif][/FONT][FONT=DejaVu Sans, sans-serif]. But after 3 months in Europe you risk becoming a tax resident (or be fined if not carrying an EU passport). When you go through airports they swipe your passport through a computer so they know when & where you are. It feels like an international police state.[/FONT]

That's because you have the wrong passport With an EU passport you avoid all that immigration stuff.

 

[BigNick]

But after 3 months in Europe you risk becoming a tax resident (or be fined if not carrying an EU passport).

I wonder what you imagine happens to Europeans who stay more than 3 months in the United States?

When you go through airports they swipe your passport through a computer so they know when & where you are. It feels like an international police state.

Swiping your passport in a European airport typically doesn't check up on whether you've overstayed your 3 months anyway, because there are so many subsets of "Europe" and I don't think that the Schengen zone, which is the main common-entry area, has a 90-day counting system. Many Schengen land borders (such as the tunnel or ferry from the UK to France) have rather haphazard controls; I regularly enter/leave France via the tunnel and they don't check my passport (because there's nobody at the desk) about half the time.

The passport swipe is typically to check that you're not on a list of known criminals. Of course, the US has a system like this: they check your first and last name. If they match, prepare to wait. Some joker at the DHS put "Edward Kennedy" on the no-fly list; I think there are around a thousand Edward Kennedys in the US. I'll take the passport swipe, thanks.

 

[Free_at_49]

That's because you have the wrong passport With an EU passport you avoid all that immigration stuff.

[FONT=DejaVu Sans, sans-serif]Thank you, immigration is not a problem, I can get an EU passport if I want. I have Canadian citizenship and have always used a Canadian passport. My late wife was American, so I also acquired US citizenship, it made her happy but US citizenship is probably working against me now. As I understand it, US citizens are taxed for life even if they no longer live in the US![/FONT]

 

[nun]

[FONT=DejaVu Sans, sans-serif]Thank you, immigration is not a problem, I can get an EU passport if I want. I have Canadian citizenship and have always used a Canadian passport. My late wife was American, so I also acquired US citizenship, it made her happy but US citizenship is probably working against me now. As I understand it, US citizens are taxed for life even if they no longer live in the US![/FONT]

Yes, be prepared to file 2 sets of taxes each year if you move to EU. The US is weird in that it taxes on citizenship rather than residency like most countries. I'm a UK/US dual citizen and I've lived in the US for 25 years and in all that time I've had no tax liability in the UK. If I move back to the UK the IRS will still want me to pay tax on my worldwide income. Just another way the US makes life difficult.

But don't worry, while it's a pain, there are tax treaties that stop you from being taxed twice and you can exclude a lot of foreign income from US taxes.

The upside of moving to Europe as a retiree is the lower cost of medical care, the better public services and public transportation.