Thousands of British retirees living in Europe are claiming state pensions of up to £35,000 a year without paying UK tax, according to recent analysis.
These expatriates are avoiding what has been dubbed the "retirement tax" whilst millions of pensioners in Britain face income tax bills.
The disparity arises because British nationals living in EU countries are not considered UK tax residents, despite receiving the same pension increases. Some EU-based retirees receive state pensions three times larger than the "full" amount.
There were 480,906 recipients of the British state pension living in the European Union as of August 2024, according to the Department for Work and Pensions (DWP).
Some pensioners are able to avoid the tax man
GETTYOf these, around 42,000 pensioners receive UK state pensions that exceed the £12,570 personal allowance. This means they would be liable to pay income tax if they lived in Britain.
However, they avoid this bill because they are no longer UK tax residents. Britain has "double taxation treaties" in place with all EU nations, meaning British nationals living in the EU cannot be taxed twice on their income.
The six retirees with the largest state pensions living in EU countries received between £680 and £690 a week, or around £35,500 a year.
Britain's complex state pension system allows some to receive payments far higher than the standard amount of £11,976. This is achieved through a combination of earnings-related add-ons and choosing to defer the benefit.
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Britons want more clarity over their state pension future
GETTYThe retirees on the highest amounts typically receive the "old" state pension, which is easier to increase through additional elements.
Meanwhile, millions of pensioners in the UK are being pushed into paying income tax. This is because tax thresholds have been frozen since 2021 under the previous Conservative government and will remain so until 2028.
At the same time, the state pension "triple lock" has pushed up retirees' weekly payments. Around 3.3 million people already receive a state pension above the £12,570 tax-free personal allowance.
The "triple lock" ensures payments rise by the highest of inflation, wage growth or 2.5 per cent each year; whichever is the highest.
David Denton, tax expert at Quilter Cheviot, said: "Those receiving the state pension while living abroad with income exceeding the personal allowance may pay a different level of tax compared to those with the same income living in the UK."
"In some cases, those living abroad may take home more of their income than their UK counterparts," he added.
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There are different tax rules for British expats depending oj the country they live in
GETTYThe state pension is paid to nearly 13 million retirees. Around 4.2 million are on the new state pension, introduced in 2016, while 8.8 million receive the old state pension.
The new "full" state pension rose by 4.1 per cent to £11,973 a year last month, while the old pension's full "basic" element has hit £9,175 a year.
Those on the old state pension can also draw money from an additional earnings-related pension, known as Serps, boosting payments by up to £11,356 a year.
Baroness Altmann, a former pensions minister, said: "The real problem is that the frozen tax threshold is perilously close to the full new state pension."
"Anyone who lives in other countries will be paying a different amount of tax, depending on the income tax rules where they live and some may pay no tax at all."
