Best and worst countries to retire to from a tax planning perspective

Many people dream of retiring abroad, be it for the better weather, a slower pace of life or a cheaper cost of living.

Some are also tempted by the idea that they can pay less tax on their pension savings if they move abroad, leaving them more money to enjoy and potentially pass onto loved ones when they die.

Spain, France and Portugal are some of the most popular European destinations for UK expats retiring abroad.

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But, Federica Grazi, founder of Mitos Relocation Solutions, tells MoneyWeek that when you run the numbers, “they may no longer be the smartest financial choice”.

She comments: “Spain and Portugal still attract thousands of retirees looking for that golden life on the Iberian coast. But one thing that often catches people off guard is taxation – and it can have a big impact on how much of your pension you actually get to enjoy.”

Grazi explains that while it was previously the poster child for expat-friendly taxes, Portugal is now one of the worst countries for pension taxation. “Its NHR [non-habitual residence] regime was fully removed for pensioners from March 2025. The standard progressive tax rates offer no personal allowance and rise to 48% [on incomes] above €84,000. That’s £8,000 more in tax per year on a £50,000 pension, and £12,000 on £100,000, compared to the UK.”

If you’re doing the sums to work out when you can afford to retire, and would like to move overseas instead of retiring in the UK, we run through the best and worst countries from a taxation perspective.

We also answer common questions about pensions and tax when you move abroad.

The top three European countries for retiring from a tax perspective

1. Greece

Greece offers new tax residents a flat 7% tax rate on all foreign income (including pensions) for 15 years, according to Grazi, which she calls a “rare and powerful incentive” when choosing which country to move to for your retirement.

“This can mean tax savings of around £4,000 on a £50,000 pension, and £20,000 on a £100,000 pension”, says Grazi, compared to if you stayed in the UK.

For example, if you take your 25% tax-free cash before you move, leaving a pension worth £100,000 when you arrive in Greece, the tax bill would be £7,000.

If you stayed in the UK, you’d face paying about £27,428 in tax.

Grazi adds: “Interestingly, in Greece, some pensions usually considered ‘government’ in the UK – like NHS and teachers’ pensions – may qualify for this [7% tax rate], unlike in other countries.”

2. Southern Italy

Towns under 20,000 residents in southern regions (including Sicily, Calabria and Puglia) offer a 7% flat tax on foreign income for 10 years, according to Grazi. She says she has noticed an increased interest from people thinking of retiring abroad in both Greece and southern Italy due to the low 7% rate.

The tax savings are similar to Greece, however note that the scheme only applies in smaller towns, not big cities or popular northern regions.

3. Cyprus

Cyprus offers two tax paths for expat pensioners:

• A flat 5% on foreign pension income over about €3,500
• Or a progressive system capped at 35%, with €19,500 tax-free

“Both can result in significant savings,” says Grazi, with someone with a £100,000 income potentially saving up to £22,500 in tax versus staying in the UK.

The worst three European countries for taxing retirees

1. Portugal

According to Grazi, Portugal is one of the worst countries for pension taxation due to the removal of its NHR regime.

Retirees face paying income tax rates as high as 48%. Someone with a £100,000 pension could pay £12,000 more than if they remained in the UK.

“Combine that with real estate prices that have more than doubled in the last 10 years and a rising cost of living, and it’s no longer the strong value proposition it once was,” she says.

2. Spain

Spain’s progressive income tax structure kicks in at 45% on incomes above €60,000. This leads to a £5,000 - £7,500 higher tax bill per year for pensions between £50,000 and £100,000, says Grazi.

She adds that there are regional variations and age-related allowances, “but overall, retirees are generally worse off than in the UK”.

3. Rest of Italy

While southern Italy offers great deals, moving to popular regions like Tuscany or Liguria means full national tax rates apply – ranging from 23% to 43%, plus regional and municipal surcharges.

“Expect to pay £8,000 - £9,500 more per year than in the UK for pensions between £50,000 and £100,000,” notes Grazi.

Three other countries worth highlighting

Albania

Albania has become a more popular tourist destination for holidays in recent years, so could it also attract retirees to move there too?

Grazi points out that there is no tax at all on foreign pensions. However, the UK state pension doesn’t increase here. This is due to the frozen state pension policy, which means only retirees in certain countries (including the European Economic Area, Switzerland, Turkey and the USA) receive the annual uplift.

France

According to Grazi, France has a similar tax profile to the UK, “although taxation is calculated as a family unit rather than individually”.

She comments: “For single individuals, there is usually not enough of a difference to make or break the decision tax-wise, while there may be opportunities for couples with a large discrepancy in earnings.”

Malta

Malta offers a Malta Retirement Programme, which in exchange for meeting criteria such as buying or renting a property in the country, offers a flat tax rate of 15% on foreign income.

Grazi notes that tax savings only start when expats have an income of more than £50,000.

Frequently asked questions about pensions and tax when retiring abroad

Grazi answers some questions that often crop up when she is helping retirees through the process of moving abroad.

Will my pension be taxed in the UK or abroad?

In most cases, your pension is taxed in the country where you reside more than 183 days a year. So if you move to Greece, Spain, or Italy full-time, that’s where your pension gets taxed.

There is one exception: UK government pensions (e.g. for civil servants, armed forces, NHS, teachers) are typically still taxed in the UK, even if you live abroad (here’s a full list from HMRC).

An important note: Because the UK tax year starts in April, while most other countries follow the calendar year, the timing of the move matters. Planning it carefully can help you avoid being taxed in both countries during the transition period.

How much will my pension be taxed?

This varies hugely by country. Some offer generous incentives for foreign retirees – Greece, southern Italy and Albania, for example – which can slash your tax bill. If no incentives apply, you’ll likely be taxed at local income tax rates, which in some countries are far higher than the UK.

Are state and private pensions taxed the same?

Generally yes, but some incentives apply only if you’ve reached the local retirement age, or your pension includes a state element.

Will I be taxed twice?

Not if there’s a double taxation agreement in place – and the UK has one with nearly every European country. These agreements mean that if you’ve already paid tax on your income in one country, you won’t have to pay it again in the other.

Will my state pension still increase?

Your UK state pension will increase if you retire to an EEA country, Switzerland, or one of the 17 countries the UK has a social security agreement with. It won’t rise each year if you live in certain countries such as Albania or Canada. The Department for Work and Pensions has published the full list on the government website.

What happens with inheritance tax (IHT)?

While many countries have lower inheritance tax than the UK – or none at all – accessing those benefits can be tricky. That’s because UK inheritance tax is based on domicile, a much stickier concept than tax residency. It depends not just on where you live, but where your assets are held, how long you’ve lived abroad, and which ties you’ve maintained with the UK.

Even if you leave permanently, UK inheritance tax can still apply to your worldwide assets for up to 10 years, and sometimes longer. Expert advice is essential.

Can I still take my 25% tax-free pension lump sum after I relocate?

Usually no – you’ll want to do this before changing tax residency.

Besides tax, which other aspects should I consider when moving abroad?

Some recurrent aspects include immigration (UK nationals need a residence permit to move to the rest of Europe after Brexit), healthcare, housing and customs – but it’s important to also consider aspects like lifestyle, community and connectivity.

Which other countries are worth considering for retirees?

While choosing a country with low taxation could save you thousands of pounds, it’s not the only thing to consider when planning a move abroad.

A report by the website Funeral Guide analysed European countries to find the best retirement hotspots based on cost of living, crime rate, and the quality of healthcare.

Denmark topped the list, followed by Slovenia, Czech Republic, Finland and Portugal.