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.
Here 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 relatively low, amenities and infrastructure are well developed, and English is widely taught in schools.
The Non-Habitual Residence Scheme offers a range of tax benefits for qualifying investors, professionals or high net worth individuals, such as:
- A flat-rate income tax of 20%.
- Potential tax exemptions on some private sector pensions.
- Ten years of special tax treatment.
- Tax exemptions on foreign-sourced income.
Residents with NHR status retain their tax allowances for ten years, without a minimum stay requirement. There is no wealth tax in Portugal – although some higher value homes may be subject to an annual property tax.
Portugal isn’t just tax-efficient but is the fourth highest country on the Global Peace Index, second only to Denmark in the EU.
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.
Income requirements are slightly higher than in Portugal to qualify for a residency permit and retirees don’t get any specific tax incentives. However, they do benefit from lower property values and the second-longest life expectancy worldwide (behind only Switzerland). Healthcare insurance is widely available and at some of the lowest rates anywhere, with 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 detail.
There is a Spanish Investor Visa programme, renewable every two years, available with investments of at least €500,000 in a Spanish property. After five years, visa holders can apply for permanent residency. They can apply for citizenship after ten years.
Spain does levy a wealth tax, although non-residents have a tax-free €700,000 allowance. That allowance changes for tax residents, from €500,000 and upward depending on your local tax office. If you live in Madrid, for example, your wealth tax exemption is €2 million.
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, with lower income taxes than most other destinations, with a maximum band of 35%. In contrast, income tax in the UK goes up to 45%, and the highest band in Portugal is 48%.
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 scheme backed by the Maltese government offering special tax status in return for investment. To qualify, expats must purchase a property for at least €275,000 (or €220,000 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:
- Flat 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 address 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 and Canada.