Best countries for British expats to retire

From unpredictable weather to rising taxes, it is unsurprising that millions of pensioners choose to live out their retirement away from the UK.

Figures from Pensions UK show a comfortable retirement now costs £45,400 per year for a single person, with higher inflation and rising taxes adding to the costs involved.

Retiring abroad offers various benefits – not just better weather, but potentially also lower living costs and reduced taxes.

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But in some cases you may be giving up useful savings and may miss out on future state pension increases if you move outside the European Economic Area depending on the social security agreements with the UK.

Financial advice firm Hoxton Wealth has assessed the most popular countries for Brits to retire in based on factors such as the tax environment and cost of living.

Best countries to retire abroad

1. Ireland

One of the main benefits of relocating to Ireland for Brits is that they get several rights under the Common Travel agreement.

UK nationals don’t need a visa and can live, work, retire and access public services in Ireland without restrictions.

British citizens can also currently apply for Irish naturalisation after five years of residence.

There are only two rates of income tax in Ireland, but both kick in at lower thresholds.

The first €44,000 (£37,321) is charged at 20% and anything above is charged at 40%. There are tax credits that bring this down, such as a personal tax credit worth €2,000.

Additionally, single over-65s are exempt if their total income is below €18,000 (£15,280) per year, rising to €36,000 (£30,560) for those who are married or in a civil partnership.

Costs may be rising faster than in the UK though, with Ireland’s latest inflation rate at 3.9% in September compared with 3.1% in the UK.

House prices are also high, averaging at €445,000 (£377,520) compared to the UK’s £272,611.

2. Cyprus

Cyprus offers a warm weather option for anyone seeking a Mediterranean retirement, plus there is a large English-speaking expat community.

The country is also quite pensioner-friendly when it comes to tax.

Expat pensioners can choose to either pay a flat 5% income tax on any income above €5,000 (£4,200) - which can be beneficial if you have other high sources of income.

Alternatively, there are progressive tax thresholds starting at 20% from €22,000 (£18,680), 25% to €42,000 (£35,660), 30% to €72,000 (£61,120) and 35% for anything above.

Average house prices range from €235,000 (£199,480) in Nicosia, €345,000 (£292,850) in Paphos and €445,000 (£377,740) in Limassol.

However, Brits can only stay for up to 90 days in any 180 day period.

Residency options include a Category F Residency Permit, suitable for individuals with secure annual income of around €30,000 (£25,470), plus €5,000 (£4,240) for each dependent.

You can also get permanent residency if you invest in a property worth a minimum of €300,000.

3. Portugal

From the Algarve to Madeira, Portugal is a sunny and relaxed retirement destination but the tax regime isn’t as generous, with rates ranging from 12.5% to 48%.

A tax exemption for pensioners ended in April 2020.

You will also need a visa to live in Portugal. There is a D7 visa for retirees or those with a minimum income of €820 (£696) per month.

Brits can also qualify for residency after living in Portugal for five years.

House prices in the popular Algarve region are around €335,000 (£284.370).

Laura Madrid, lead researcher at Global Citizen Solutions’ Global Intelligence Unit, adds: “Besides the weather and quality of life, Portugal combines a relatively low cost of living with a high level of security.”

4. Malta

Malta is another warm Med destination, plus English is an official language.

Inflation is low at 2% and the average house price on mainland Malta is €285,000 (£241,930) for a two-bed flat, compared with around €190,000 (£161,290) on Gozo - making it cheaper than the UK.

But the main benefit is that pension income is exempt from tax up to €37,104 (£31,494) a year for those aged 61or over. Above that, there is a personal allowance of €12,000 (£10,190) for single taxpayers, with tax bands of 15%, 25% and 35%.

To live in Malta, you would need to buy or rent a property to be eligible for the Malta Permanent Residency Programme.

There is also a Malta Retirement Programme (MRP) designed for retirees that charges 15% on all pension income.

At least 75% of income must come from a qualifying pension and applicants must be retired.

5. Malaysia

Malaysia has a tropical climate, fantastic food, low taxes and a cheap cost of living, with inflation at 1.9% and the typical house price of RM506,317 (£93,656).

Resident income tax starts at 1% on income above RM5,000 (£925), rising progressively to 30% when your income goes above RM2 million (£370,000).

Foreign sourced income such as a UK state pension isn’t taxed. The downside though is that the UK state pension isn’t uprated for expats in Malaysia, so it won’t increase.

To live permanently in Malaysia, options include the Malaysia My Second Home (MM2H) Programme, which provides five- or 10 year-renewable visas as long as you are bringing in a minimum offshore income of RM40,000 a month (around £7,000).

6. Panama

Panama has the benefits of a warm climate and relatively low living costs.

Average house prices are a lot cheaper than the UK at around $300,000 (£226,770).

The tax environment is also attractive, with no tax to pay on the first $11,000 (£8,320) of income, followed by 15% up to $50,000 (£37,800) and 25% above that.

The popular Pensionado residency scheme provides permanent residency to retirees with regular pension payments of at least $1,000 (£760) a month. This can come from the UK state pension or an annuity.

Additionally, income earned outside Panama is generally exempt from tax. However, your UK state pension won’t rise with inflation.

7. Spain

Spain is an established expat retirement destination but the tax system isn’t as attractive as the sangria, ranging progressively from 19% on the first €12,450 (£10,567) of taxable income up to 47%.

Over-65s get a tax credit of €6,700 (£5,687), rising to €8,100 (£6,875) from age 75.

Despite the sunshine, the cost of living can be higher in Spain.

Inflation rose to 4.9% in September, while the typical house price is €250,902 (£212,940) rising as high as €427,000 (£362,390) in the Balearics.

The main option for retirees who want to live permanently in Spain is the Non-Lucrative Visa (NLV). Applicants need to earn a minimum of €28,800 (£24,442) per year.

Note that your ISA income loses its tax-free status if you retire in Spain.

8. Greece

Greece has sun and sea as well as attractive tax rates including a 7% levy on all foreign income for pensioners from overseas who move their tax residence to the country. It lasts for up to 15 years.

There is also a Long Stay Visa, where you need income of around €2,000 (£1,700) per month, or you can get a Golden Visa by purchasing property worth a minimum of €250,000 (£212,170).

It can be expensive though, with average house prices around €350,000 (£297,040).

9. Mauritius

Mauritius combines an attractive climate in terms of weather and tax.

There is a personal allowance of MUR500,000 (around £8,500), with two progressive tiers at 10% between MUR500,001 and MUR1,000,000 and 20% above that.

However, inflation is high at 4.9%, while the average house price is MUR43.1 million (£687,378).

Over-50s can apply for a renewable 10-year Retired Non-Citizen Residence Permit, which requires an income of at least $1,500 (£1,132) per month to be transferred into a local bank account.

10. Turkey

One of the main attractions of Turkey beyond the food is property prices, averaging at 5 million Turkish Lira (TRY) or around £100,000.

Residency can be obtained by purchasing property, but beware of rising living costs: Turkey’s annualised inflation figure was 29.7% in September.

Income tax starts at 15% on the first TRY190,000 (£2,915), rising progressively to 20%, 27%, 35% and finally 40% above TRY5.3 million £81,328).

Should you retire abroad?

The best country to retire to may not be the cheapest one.

You need to consider how close you want to be to family, as well as healthcare needs.

Most European Union countries give Brits access to the state healthcare system but outside of Europe you need to ensure there are accessible hospitals if needed and you may require private medical insurance or to pay for treatment yourself.

You also shouldn’t assume that leaving the UK means leaving the tax system

“UK property and certain other UK-source income can remain within the UK tax net,” says Sonal Shah, international tax partner at accountancy and business advisory firm Gerald Edelman.

“Pensions need to be considered under the relevant treaty. Depending on an individual’s residence history, somebody who leaves the UK can remain within the UK inheritance tax net on their worldwide estate for between three and 10 tax years after departure. That is something a retiree could easily overlook.”