Last Updated on 6th September 2024
Selecting an overseas retirement destination is often difficult, with complex considerations around location, climate, community, healthcare, and living standards. It’s also important to evaluate how your income and outgoings may change depending on the type of pension you hold and other earning streams, such as investment returns.
Some countries have generous taxation regimes, favourable allowances for foreign-source pensions and visa programmes designed to attract foreign national expatriates – whereas, in others, your nest egg may not stretch as far as you’d like.
In this article, we summarise some of the highest-demand locations and what they offer in terms of tax efficiency for retirees.
Portugal as a Retirement Destination
Portugal remains one of the most popular EU countries for British retirees and offers much more besides the beautiful coastal landscape and contemporary cities. Living costs are, on average, 27% lower than in the UK, properties are over 20% more affordable, the amenities and infrastructure are well-developed, and English is widely taught in schools.
Although the closure of the Non-Habitual Residence Scheme and reforms to the ‘golden visa’ may appear a deterrent, the country remains tax-efficient, and has varied visa routes well suited to retirees with a stable passive income – the D7 visa is one of the most-used solutions.
Portugal isn’t just tax-efficient but also the seventh-highest country on the 2024 Global Peace Index, and the fourth-highest-ranked EU country. Non-residents pay a flat-rate 25% tax on localised incomes, whereas tax residents pay taxes on all their worldwide income and assets.
Notably, the absence of a wealth tax and lower living costs often make Portugal more competitive from a financial perspective than many other countries. While there is an annual property tax, the exemptions are generous and worth up to €1.2 million per couple, with a tax rate of just 1% for real estate valued up to €2 million.
You may be interested in our EU Retirement Guide for further insights into comparable taxation rates and exemptions in other European countries.
Paying Tax on Retirement in Spain
Our next destination is Spain, another hugely popular country for UK nationals looking to retire to a warmer location with excellent living standards.
The Spanish government offers a residency by investment programme, which enables foreign nationals to qualify for residency status with a property purchase of €500,000 or more – and with flexible criteria that allow expats to purchase rental units or several smaller residences to reach that minimum value.
Spain is also regarded as one of the healthiest European nations, with the second-highest life expectancy behind only Switzerland. Health insurance is widely available and at some of the lowest rates anywhere, and the country has a well-developed medical sector.
Pension income is taxed on a graduating scale, at between 8% and 40%, although there are multiple options to transfer your pension into a tax-efficient structure and minimise your exposure. Please access our complimentary guide to Transferring a Pension Overseas for more details.
Tax residents living in Spain may become eligible to apply for permanent residency after five years of continuous residency and for citizenship after ten years.
Spain does levy a wealth tax, although a tax-free €700,000 allowance applies, alongside a €300,000 allowance for primary residential homes.
Paying Tax on Retirement to Ireland
Ireland may not be your preferred country for retirement if you’re looking for Mediterranean warmth. Still, it is a stunning place to live, with a long heritage, a great schooling system, and a booming employment sector.
Foreign nationals often relocate overseas businesses to take advantage of long-standing low corporation taxes – currently just 12.5%.
Tax benefits for retirees include:
- The absence of any wealth tax.
- Possible tax exemption against any income or gains from outside of Ireland.
- Tax-free remittance of revenue from the previous tax period before the relocation.
- Straightforward options to reduce or avoid Capital Acquisitions Tax (the equivalent to inheritance taxes).
Income tax in Ireland is simplified, with broad rates of 20% and 40%. The proportion of your income taxed at the lower 20% rate increases if you are married, in a civil partnership, or have dependent children.
Residents receive an Age Tax Credit if they are 65 or above. The credit is worth €245 for an individual or €490 for jointly assessed partners.
Tax-Efficient Retirement in Malta
Our fourth and final country is Malta, which has lower income taxes than most other destinations and a maximum band of 35%. In contrast, income tax in the UK goes up to 45%, and the highest bands in Spain and Portugal are 47% and 48%, respectively.
This tiny island has long been a strategic spot for businesses, with over 300 days of sunshine every year, making it a draw for foreign nationals seeking a new permanent home.
The Malta Global Residence Programme is a residency scheme backed by the Maltese government offering special tax status in return for investment. To qualify, expats must purchase a property for at least €350,000 (or €300,000 in South Malta or Gozo) or rent a property for at least five years. There are additional application charges and criteria.
Special tax status has several advantages:
- A flat-rate 15% income tax rate on all foreign income remitted to the island.
- No capital gains on foreign-sourced capital gains (even if transferred to Malta).
- Locally sourced income is taxed at the 35% income tax cap.
Residents must pay a minimum of €15,000 a year but often reduce the tax payable against their pension income if they choose to retain an overseas pension fund. It may be possible to reduce that tax liability further by transferring a UK pension into a different investment or pension structure.
Choosing the Most Tax-Efficient Countries to Retire to
We hope this overview has helped demonstrate the varying tax efficiency between potential retirement destinations.
The right location for you depends on your personal finances, plans and circumstances, so the optimal approach is to discuss your favoured destinations with a specialist expatriate tax adviser. In many cases, you can restructure your investments, savings, pensions, and property portfolios before a move to take a proactive approach to mitigate unnecessary tax exposure and protect your wealth for the future.
Please contact your nearest Chase Buchanan office if you would like guidance around any countries discussed. You can also visit our Expat Taxation Guides covering Belgium, France, Portugal, Cyprus, Italy, Malta and Spain.
* Updated August 2024