09 August 2022
The pandemic provided many individuals with the opportunity to press the pause button and re-evaluate their priorities. For some people in their 50s and 60s, who had simply been going through the motions every day, or not stepped out of the fast lane for years, the thought of returning to the pre-pandemic working way of life is not ideal.
At the same time, we are emerging out of the pandemic into a more unstable financial world. With the backdrop of the war in Ukraine, fluctuating stock markets and inflation predicted to hit 13% later this year, hopeful retirees may be asking themselves how best to plan for retirement and if they can truly afford to retire in the first place.
One option could be retiring to a country with tax breaks and visa options designed to attract foreign pensioners to their shores. Many popular retirement destinations, including Portugal, Malta and recently, Greece, aim to attract investment and taxpayers to their countries by offering beneficial tax regimes. As tax is often one of the biggest expenses that individuals face, reducing the tax burden could ease any cost-of-living concerns (a rhetoric heard repeatedly over the last few weeks from those vying to be our next Prime Minister).
Many popular retirement destinations have a Double Taxation Agreement (DTA) in place with the UK, under which the primary taxing rights on income from private UK pension schemes lies with the country of residence. Such pension income is not subject to UK tax in the hands of individuals not resident in the UK.
Turning to the countries mentioned above:
- In Portugal, the non-habitual resident (NHR) taxation regime allows for foreign pension income to be taxed at just 10% (compared to the UK rates of 20%, 40%, or 45%). In order to qualify for NHR status an individual must meet various criteria, including having a right to live in Portugal and being a non-Portuguese resident throughout the 5 calendar years preceding an application for NHR status.
- In Malta, under the Malta Retirement Programme, a flat tax rate of 15% may potentially apply to foreign source pension income received in Malta. Again, there are a number of qualifying criteria that would need to be met in order for an individual to be eligible for this tax treatment, including that pension income must constitute at least 75% of their total chargeable income in Malta.
- A new pensioners’ scheme now being offered in Greece may be the most attractive offer of all. If an individual qualifies, the scheme promises an annual flat rate of tax of 7% on withdrawals from non-Greek private pension schemes for up to 15 years.
It is rarely sensible to uproot life and move overseas purely for tax and financial reasons, particularly since tax could be payable at a higher rate in the UK if the move turns out to be a temporary one. However, the economic turbulence could prove to be the catalyst for those retirees already dreaming of that place in the sun.