Wealthier expats should compare tax perks in popular retirement destinations

For several decades, sunny Portugal has been a refuge for British expat pensioners looking to enjoy their leisurely lives in a warm climate offering welcome tax exemptions for wealthier incomers.

The capital, Lisbon, along with the Algarve region and Porto are still all-time favourites for those wishing to become tax residents. Qualifications include spending 183 days in the country during the relevant tax year or having a home in the country which qualifies as an habitual residence. Under Portugal’s non-habitual residence plan, overseas pensions can be taken tax-free for ten years.

Another favourite, especially with British expats, is the historic island of Malta, also offering pensioners over 61 years of age a tax exemption scheme on pension incomes of €13,200 or less. The plan applies to diverse types of pensions including foreign-based schemes, social security pensions and local schemes. Cyprus’s 5 per cent general tax exemption plan is open to expatriate pensioners, who’re also allowed to take their pension pot as a tax-free lump sum. However, in the future, the tax-free lump sum plan may not apply to UK government service pensions paid overseas.

Given the expanding choices of ways for expatriate retirees to avoid double taxation in their chosen overseas retirement destinations it’s no surprise that vocal critics are having their say. For example, Finland is in a tax battle with Portugal over its bilateral tax treaty on behalf of Finnish retirees. Expat pensioners play a vital part in Portugal’s economy, one reason why its government is committed to being generous to its resident expats even although many Portuguese citizens are struggling with rising inflation.

In general, governments see taxing pensions as a convenient source of income, with those giving the best deals to comparatively wealthy expatriates sure to attract more long-term retirement residents. European governments are now getting tougher on the issue, with France planning to tax all French pensions paid overseas. The UK, a source of a good number of well-off Brit pensioners heading for Portugal, is now slapping exit taxes on international pension transfers to countries without HRMC-qualifying schemes as well as countries outside the European Economic Area.

The message to would-be expatriate retirees of all this inter-state wrangling on the subject of pension taxation is to get good professional advice on the best destination for their personal finances as regards avoiding taxation wherever possible.