Best and worst countries to retire – where does the UK rank?

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.

While some of the most popular destinations for Brits to retire abroad have long been sunny European countries like Spain, France and Portugal, new research suggests that the best country for retirees could be closer to home.

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A study by financial advisory and wealth management firm Hoxton Wealth found that old favourites like Portugal and Spain offer worse value for money than other nations, both in and outside of Europe.

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 places to be a pensioner.

Where are the top countries for UK pensioners looking to retire overseas?

Ireland

The best country to retire in for UK pensioners is the Republic of Ireland, according to data analysed by Hoxton.

The country scored highly across Hoxton’s ten criteria, which included cost of living, taxation, healthcare, economy, safety, and climate.

In particular, Hoxton found that Ireland is the easiest European country for UK pensioners to move to when they retire, thanks to its Common Travel Area agreement with the UK which means British nationals can live, work, retire, and access public services in Ireland without restriction.

This, according to Hoxton, means UK residents can make the most of seamless legal migration unlike any other EU country post-Brexit.

Furthermore, Hoxton pointed out that Ireland’s economy is growing especially quickly thanks to its thriving tech, pharmaceutical, and finance sectors.

Cyprus

The second-best place to retire overseas as a British pensioner is Cyprus, according to Hoxton, thanks to its climate, natural beauty, and favourable tax regime.

While paperwork to move to the island can be slow and bureaucratic, Hoxton says it is still one of the most welcoming EU states for Britons with clear, low-barrier processes for retirees.

The lower cost of living in the country is a big plus too – it is far cheaper to live in Cyprus than Britain, especially when you venture outside of the two major cities of Limassol and Nicosia.

Portugal

One of the most popular places for UK pensioners to move to has long been Portugal, and for good reason. The country enjoys hot summers and mild winters, an exceptional draw for retirees, as well as a relatively low cost of living and excellent travel links.

For many pensioners who moved to the country in the past, low taxes were among the biggest draws but pensioners who move there today will no longer find significant tax savings there.

However, the country does boast a fantastic climate, lifestyle, and high levels of safety, as well as its large expat community.

Malta

The fourth-best place to retire according to Hoxton is Malta. This Mediterranean island rates highly for climate, safety, healthcare, and visa access.

What’s more, taxes are relatively low in Malta when compared to the UK with expats only having to pay a flat tax rate of 15% on foreign income if they meet certain criteria.

Malaysia

Finally, the fifth-best place to retire on the list is Malaysia. While it is quite a bit further away from Britain than many of the other top countries, Hoxton found that it compensates for this in other ways.

The cost of living in Malaysia is especially low in terms of both property and everyday spending, offering outstanding value for money and allowing you to live a luxury lifestyle on a budget.

From a tax perspective, it can scarcely be beaten as pension income is not taxed in most circumstances, allowing it to be legally tax-free if you structure your finances well, according to Hoxton.

Meanwhile, the country’s tropical weather can be a big plus for some, though it could put some people off.

The full list of the best countries for UK retirees can be found below. Hoxton rated each country out of ten in ten categories and added the scores to find the best overall.

Source: Hoxton Wealth, countries were rated on: Visa Access, Cost of Living, Taxation, Healthcare, Economy & Stability, Climate & Lifestyle, Safety, Language & Integration, Property Ownership, Travel Connectivity.

Is the UK a good country to retire in?

The UK received 77 points in Hoxton’s research, putting it just below France and above Italy.

While it does not score badly in most categories, the cost of living in Britain is among the highest of the countries analysed.

This, alongside the high tax burden, is often a key driver for those who are considering retiring abroad and explains why so many UK pensioners weigh up the option of moving abroad.

Of course the main draw of retiring in the UK for British pensioners is that you will be able to stay in the country that you have likely spent most of your life.

Most people will have close family and friends in the UK, making it easier to stay in touch with them, and there won’t be any language barriers.

While you will have to forgo the much better climate that can be enjoyed in other countries on the list, and you may have to pay more tax, for some people it could be well worth retiring in the UK.

The top European countries for retiring from a tax perspective

The best European country to retire in for tax is Cyprus, according to separate analysis by Mitos Relocation Solutions. Alongside its great weather and natural beauty, foreign pensioners here are not taxed as heavily as they would be in the UK.

Pensioners in this island republic can choose to either pay a flat 5% rate on their pension income over €3,420 per year or join onto the income tax rates on Cyprus’ progressive system which is capped at 35%, with €19,500 tax-free.

The second-best place to retire from a tax perspective is Greece, where there is a just a flat 7% tax rate on all foreign income (which includes pensions) for 15 years if you are a tax resident.

Federica Grazi, founder of Mitos Relocation Solutions, says retiring in Greece could save you around £4,000 on a pension of £50,000, or £20,000 on a £100,000 pension, compared to if you chose to retire in the UK.

Another great choice for retirees is the south of Italy, where you can pay a flat 7% tax scheme for foreign pensioners in select municipalities for up to 10 years.

The places where this flat tax rate is available include Molise, Campania, Basilicata, Apulia, Calabria, Sardinia, and Sicily.

If you choose to make the most of this offering, Hoxton Wealth advises that you seek professional advice as the tax system is quite complex.

Finally, though it is not a European country, an honourable mention can go to the UAE, where there is no income tax on individuals in the UAE, nor is there inheritance tax, pension tax, or tax on investment income, making it a great place for retirees to move.

There is a catch, however – retirees have to maintain non-residency in the UK as without doing so, they will have to pay UK tax obligations.

The worst European countries for taxing retirees

While Portugal used to be one of the best countries to retire to for tax purposes, it is now one of the worst after it removed its Non-Habitual Residency (NHR) regime which offered a flat 10% tax on foreign pensions.

Instead, new foreign pensioners now face paying income tax rates as high as 48%, according to Grazi at Mitos Relocation Solutions.

Another popular location for retired Brits to move to is Spain, but despite its great climate it is certainly not a tax haven as it charges 45% on incomes above €60,000.

Finally, retirees conscious to pay less tax on their pensions should avoid the rest of Italy as, outside of the mentioned municipalities, full national tax rates apply – ranging from 23% to 43%, plus regional and municipal surcharges.

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.