Portugal was once the epitome of taxation that was favorable to foreigners, but it is currently among the worst nations for pension taxes
Which European nations offer the best financial options for those looking to retire overseas?
Many people aspire to retire overseas, either because of the better climate, slower pace of life, or lower cost of living.
The prospect of paying less taxes on their pension funds if they relocate overseas also tempts some people, increasing their disposable income and possibly allowing them to leave it to their surviving family members.
Some of the most popular European retirement destinations for UK expats are Spain, France, and Portugal.
Federica Grazi, the founder of Mitos Relocation Solutions, tells BFIA that "they may no longer be the smartest financial choice" after doing the math.
She remarks: "Thousands of retirees continue to flock to Portugal and Spain in search of the Iberian coast's golden lifestyle. However, taxes can significantly affect how much of your pension you actually get to enjoy, and they are one thing that frequently surprises people.
Although Portugal was once the epitome of taxes that were favorable to foreigners, Grazi notes that it is currently among the worst nations when it comes to pension taxes. "As of March 2025, the NHR non-habitual residence regime was completely eliminated for pensioners. Without a personal allowance, the standard progressive tax rates increase to 48% on incomes over £84,000. In comparison to the UK, that is an additional 8,000 in taxes on a 50,000 pension and 12,000 on a 100,000 pension.
We list the best and worst countries from a taxation standpoint if you're calculating when you can afford to retire and would prefer to relocate abroad rather than stay in the UK upon retirement.
When you relocate overseas, we also address frequently asked questions about taxes and pensions.
In terms of taxes, the top three European nations for retirement.
1. . As a "rare and powerful incentive" when deciding which country to retire to, Greece offers new tax residents a flat 7 percent tax rate on all foreign income (including pensions) for 15 years, according to Grazi. According to Grazi, "this can mean tax savings of around 4,000 on a 50,000 pension, and 20,000 on a 100,000 pension" when compared to staying in the Netherlands. For example, the tax bill would be 7,000 if you took your 25% tax-free cash before moving to Greece, leaving a pension of £100,000 when you get there. You would have to pay roughly 27,428 in taxes if you remained in the UK. Grazi continues, "It's interesting to note that, in contrast to other nations, certain pensions that are typically regarded as government in the UK, such as teachers' and the NHS pensions, may be eligible for this 7% tax rate in Greece.
2. According to Grazi, towns with fewer than 20,000 inhabitants in southern Italyincluding Sicily, Calabria, and Pugliaoffer a flat tax of 7% on foreign income for ten years. She claims that because of the low 7 percent rate, she has observed a rise in interest from those considering retirement overseas in both southern Italy and Greece. The tax breaks are comparable to those in Greece, but keep in mind that the program only applies to smaller townsnot to large cities or well-known northern areas.
3. Cyprus provides foreign retirees with two tax options.
A flat 5 percent tax on foreign pension income over roughly 3,500 or a progressive system with a 35 percent cap and 19,500 tax-free "Both can result in significant savings," says Grazi, adding that an individual with a £100,000 income could save up to 22,500 in taxes compared to remaining in the UK.
These three European nations have the highest taxes on retirees.
1. . According to Grazi, Portugal's removal of its NHR regime has made it one of the worst nations for pension taxes. Income tax rates for retirees can reach 48%. A pensioner with £100,000 could pay £12,000 more than they would have if they had stayed in the UK. She claims that when you add rising living expenses and real estate values that have more than doubled over the past ten years, the area is no longer a good value.
2. . For incomes over £60,000, Spain's progressive income tax system takes effect at 45%. For pensions between £50,000 and £100,000, this results in an annual tax bill increase of £5,000 to £7,500, according to Grazi. "But overall, retirees are generally worse off than in the UK," she continues, citing regional differences and age-related benefits.
3. . Italy's remaining regions.
While there are some fantastic bargains in southern Italy, relocating to a popular area such as Tuscany or Liguria entails paying full national tax rates, which range from 23 to 43 percent, in addition to regional and local taxes. As Grazi points out, "You should expect to pay 8,000 to 9,500 more annually than in the UK for pensions between 50,000 and 100,000."
Three more nations that merit mention.
Albania.
Since Albania has grown in popularity as a vacation spot in recent years, might retirees be drawn to relocate there as well?
As Grazi notes, foreign pensions are completely tax-free. The state pension in the UK does not, however, rise here. This is because of the frozen state pension policy, which only provides the yearly boost to retirees in a few countries (such as the USA, Switzerland, Turkey, and the European Economic Area).
France.
Grazi asserts that "although taxation is calculated as a family unit rather than individually," France's tax profile is comparable to that of the UK.
She remarks: "For single people, the tax difference is typically insignificant enough to make or break the decision, but for couples with a significant income gap, there might be opportunities.
Malta. .
The Malta Retirement Programme offers a flat tax rate of 15% on foreign income to participants who meet certain requirements, such as purchasing or renting a home in the nation.
According to Grazi, tax savings only begin for foreigners with incomes over £50,000.
Common inquiries concerning taxes and pensions when retiring overseas.
When assisting retirees with their international relocation, Grazi responds to some frequently asked questions.
Will my pension be taxed overseas or in the UK?
The majority of the time, your pension is taxed in the nation where you spend more than 183 days a year. Your pension will therefore be taxed in Greece, Spain, or Italy if you relocate there on a full-time basis.
The UK government pensions (e) are the only exception. A. Even if you live overseas, you are usually still subject to UK taxes for civil servants, members of the armed forces, the NHS, and teachers (here is a complete list from HMRC).
An important point is that the timing of the move is crucial because the UK tax year begins in April, whereas the majority of other countries use the calendar year. You can avoid paying taxes in both countries during the transition period by carefully planning.
What is the tax amount on my pension?
By nation, this varies greatly. Greece, southern Italy, and Albania, for instance, provide substantial incentives for foreign retirees that can significantly reduce your tax liability. If no incentives are available, you will probably pay local income tax rates, which are significantly higher in some nations than in the UK.
Are private and public pensions subject to the same taxes?
In general, yes; however, certain incentives are only applicable if you have attained the local retirement age or if your pension has a state component.
Will I receive two taxes?
Not if there is a double taxation agreement in place, which the UK has with almost all of the European nations. Because of these agreements, you won't be required to pay taxes on your income again in another country if you have already done so in the first.
Will I still get a raise in my state pension?
If you retire to an EEA nation, Switzerland, or one of the 17 nations with which the UK has a social security agreement, your UK state pension will rise. Living in certain nations, like Canada or Albania, won't cause it to increase annually. The complete list is available on the government website, which is maintained by the Department for Work and Pensions.
How is the inheritance tax (IHT) handled?
It can be challenging to access the benefits of many nations that have lower inheritance taxes than the UK or none at all. That's because domicilea far more elusive concept than tax residencyis the basis for UK inheritance tax. In addition to your residence, it also depends on where your assets are held, how long you have lived overseas, and what connections you have with the UK.
For up to ten years, and occasionally longer, UK inheritance tax may still be applied to your foreign assets even if you move abroad permanently. Expert counsel is crucial.
When I move, will I still be able to take my 25% tax-free pension lump sum?
Generally speaking, you should do this before relocating your tax residence.
When relocating overseas, what other factors should I take into account besides taxes?
Immigration, healthcare, housing, and customs are some recurring factors (UK nationals must have a residency permit to travel to the rest of Europe after Brexit), but it's also critical to take lifestyle, community, and connectivity into account.
Which other nations are desirable to retirees?
Even though picking a nation with low taxes can save you thousands of pounds, there are other factors to take into account when preparing to relocate overseas.
The Funeral Guide website conducted an analysis of European nations to determine the top retirement destinations based on factors like crime rate, cost of living, and healthcare quality.
Denmark was at the top, followed by Slovenia, Portugal, Finland, and the Czech Republic.
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