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Retiring in Europe is a priority for many, whether you intend to live in sun-soaked Portugal or Spain, buy a luxury villa in Malta, enjoy retirement in rural Italy or the south of France, or purchase an elegant retirement home among the cobbled streets and stunning architecture of the major cities in Belgium.

As with any international move, the planning and research you invest will pay dividends, identifying the contrasts in lifestyle, living costs, visa eligibility criteria and tax exposure, all of which may influence the best European country to fulfil your retirement aspirations.

In this article, we summarise some of the key factors to consider, the common stumbling blocks expats experience, and some pointers to ensure your retirement is everything you have hoped for.

1. Pension Benefits and Values May Change Following a Cross-Border Move

Most expatriates will rely on their pension funds to form a proportion of their retirement income, whether they hold private defined benefit or contribution schemes, are eligible for the UK State Pension, or have a stakeholder pension fund from a business or employer.

There are numerous potential ways to manage your pension assets when moving to the EU, and the decisions you make could impact the value of your benefits, access to lump-sum drawdowns and the tax you pay on those earnings.

Last year, over a million British citizens claimed the State Pension from abroad, and in almost all cases, you will retain entitlement. Provided you move to a country within the European Economic Area, Gibraltar, or Switzerland, you will still receive an annual uplift in your benefits.

However, if you relocate elsewhere, you will normally receive the State Pension, but capped at the rate payable when you leave the UK. It is also important to recognise that the State Pension is always remitted in GBP, which means you’ll either need to account for international transfer charges or the currency exchange rate in your chosen place of residence.

Similar complexities apply to private pension funds, where transferring a scheme abroad could attract a steep tax obligation, especially for high-value pension funds. Our pension transfer guide provides further information about the most-used pension transfer solutions, including Recognised Overseas Pension Schemes (ROPS) and Self-Invested Personal Pensions (SIPPs).

Expats planning their retirement in the European Union and looking for additional information are welcome to download our complimentary Guide to Retiring in the EU, which provides guidance about state pensions, taxation on pension income, and transferring your pension to an overseas country.

2. Tax Exposure Is Only One Consideration When Deciding Where in Europe to Retire

While it may be natural to think about the EU countries with the lowest income tax or those without a wealth tax, it’s also wise to think beyond how you handle your investments, income and pension.

Tax obligations remain important, but many expats find that life overseas isn’t always quite as they had imagined, and living somewhere as a long-term resident is somewhat different from the experience as a visitor or tourist. It’s well worth travelling to your intended place of residence as many times as you can, evaluating:

  • The language or dialects spoken, your proficiency in those languages, whether there is a friendly, welcoming expat community, or whether there are significant language barriers that could make it hard to integrate and make new friends.
  • The weather—although much of Europe enjoys warm summers and mild winters, this only applies to southerly countries. Regions in northern Portugal, for example, tend to be cooler and wetter over the winter.
  • Amenities and leisure facilities. If you plan to spend your retirement years enjoying outdoor activities such as sailing and golfing or expect to have the convenience of a local gym, supermarket, public transport links and open spaces, this might impact the countries or cities most suited to you.

One of the most common reasons expatriates have a change of heart is that they’ve visited a place numerous times for holidays and family trips but haven’t realised that the day-to-day life isn’t what they’d envisaged – access to an airport, for example, may be essential if you intend to travel back and forth regularly, or to invite your loved ones to visit.

Speak to a Local Adviser

3. Wealth Taxation Differs Widely Between EU Countries

UK citizens are often caught out by wealth taxes since they do not form part of the British tax system. The best advice is to consider your assets and the way you structure your portfolio before relocating overseas.

By taking any necessary action in advance, you can often mitigate exposure to certain taxes or limit the tax burden you are expected to pay – including a review of any wealth taxes payable and how these may apply to your estate.

We’ll discuss tax residency shortly, but this is a fundamental factor. If you are a permanent tax resident and spend the majority of your time in a European country, you will also be obliged to declare and pay tax on your worldwide income and assets.

In contrast, if you split your time between the UK and another country and are categorised as a British tax resident, only the assets held in the overseas country will likely be subject to wealth tax, where applicable.

Some countries have no wealth taxation whatsoever, but many key destinations, including Spain, France and Portugal, have some form of wealth tax, which can be based solely on real estate or against all of your wealth.

4. Your Tax Residency Status Requires Careful Review

Tax residency differs from your residency status as a visa or permit holder and is not connected to your citizenship. A UK citizen living in Malta, for example, could be a Maltese taxpayer, regardless of the type of visa they hold and whether they travel under a UK passport.

While we touched on the implications of tax residency above and how this can change your exposure to tax obligations both in the UK and overseas, it is also necessary to review the terms of your visa and comply with minimum stay requirements.

Exact terms and conditions will vary between each country. Still, you should have full oversight of the conditions of exit and entry because some visa schemes, which grant residency permits or even citizenship, depend on you staying within the country for a set proportion of the year.

Travelling frequently could mean you inadvertently change your tax residency position or unknowingly omit to declare an income stream or asset that should be subject to tax in either jurisdiction. Some expats also find they are technically considered tax residents in two places simultaneously.

In these scenarios, we examine the statutory residence tests to establish clarity and ensure you claim the appropriate double tax treaties to avoid duplicate tax liability. However, it remains important to know how this works and how your travel plans may affect your tax residency and visa eligibility.

All of these factors dictate the need to make informed wealth management choices based on your plans, the place you wish to retire to, your assets and income, and the types of taxation you may be subject to.

For more personalised guidance about retirement in Europe or to discuss any of the points raised in this article, please contact your nearest Chase Buchanan team to arrange a time to talk with one of our experienced Private Wealth Managers.

*Information correct as at July 2024