Retirees hit by state pension stealth tax could save up to £8,000 by relocating to these 4 countries

According to the Pensions and Lifetime Savings Association, a single pensioner requires £52,220 annually for a comfortable retirement standard.

This income level pushes retirees into the 40 per cent higher rate tax bracket, resulting in an £8,320 annual tax bill - effectively surrendering 16 per cent of their income.

However, pensioners exploring retirement overseas can discover numerous countries with favourable tax regimes that welcome British retirees whilst demanding far less of their pension income.

Greece

Greece has emerged as a particularly attractive destination, offering new tax residents a flat seven per cent rate on all foreign-sourced income, including pensions, for up to 15 years.

This preferential regime could save retirees approximately £4,665 annually compared to remaining in Britain, the Telegraph reported.

To qualify, retirees must spend more than 183 days annually in Greece and not have been tax resident there for five of the previous six years. They must also relocate from a country with which Greece maintains a double taxation treaty, which includes Britain.

"This can mean tax savings of around £4,000 on a £50,000 pension, and £20,000 on a £100,000 pension," according to Federica Grazi, founder of Mitos Relocation Solutions.

Greece's golden visa scheme permits expats to gain residence through real estate investment, though minimum property values have risen to €800,000 in popular areas like Rhodes, Kos and Santorini.

Cyprus

Cyprus offers British retirees two generous tax pathways that can significantly reduce their pension-related tax bills. The first is a flat five per cent rate on foreign pension income above €3,420 (around £3,500), which can deliver annual savings of up to £5,854 for those with higher incomes.

An alternative option is the standard progressive tax system, which exempts the first €19,500 (approximately £21,400) from tax. This route is often more advantageous for pensioners with lower annual incomes.

To benefit from either scheme, retirees must spend more than 183 days a year in Cyprus. Once tax residency is established, UK state, workplace and personal pensions are taxed locally. However, government service pensions — including those for civil servants, police and armed forces — remain taxable in the UK.

Non-domiciled residents also enjoy major advantages, including exemptions from taxes on dividends, interest, inheritance, wealth, and capital gains on property sold outside Cyprus.

Grazi told MoneyWeek: “Both can result in significant savings. Someone with a £100,000 income could potentially save up to £22,500 in tax compared to remaining in the UK.”

For a retiree living on £52,220 — the figure cited by the Pensions and Lifetime Savings Association for a ‘comfortable’ retirement — the 5 per cent flat rate would mean an annual tax bill of just £2,466, representing a saving of £5,854 when compared with staying in Britain.

Italy

Italy offers retirees a seven per cent flat tax rate on foreign income, mirroring Greece’s incentive and potentially saving British pensioners up to £4,665 annually.

This favourable regime is available only in underpopulated southern regions such as Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sicily and Sardinia, and applies to municipalities with fewer than 20,000 residents.

The scheme is valid for ten years and is open to those who have lived outside Italy for at least five of the previous six years. Non-EU citizens must apply for an elective residency visa, which requires proof of €31,000 in annual income for individuals or €38,000 for couples.

This targeted policy is part of Italy’s broader effort to revitalise rural areas while attracting foreign income, offering pensioners a significant tax advantage compared to remaining in the UK.

UAE

The United Arab Emirates stands out with its zero income tax regime, offering complete tax exemption on pension income. Retirees maintaining a comfortable £52,220 annual income would save the entire £8,320 they would otherwise pay in UK taxes.

Dubai's retirement visa provides five-year renewable residency for expats aged 55 and over who meet specific requirements. Applicants need either a minimum yearly income of AED240,000 (£48,600), property ownership worth at least AED1m, or equivalent savings in a UAE bank account.

However, David Denton of Quilter Cheviot warns that "low-tax environments, such as the UAE, can come with hidden costs - mandatory health insurance being a prime example - effectively functioning as indirect taxation."

Crucially, retirees relocating to the UAE will not receive annual triple lock increases on their state pension, as Britain lacks a reciprocal agreement with the Emirates.

These favourable tax regimes contrast sharply with traditional retirement destinations. Spain and Portugal, once popular choices, now impose significantly higher tax burdens on pensioners.

"Portugal is now one of the worst countries for pension taxation," explains Grazi. "Its NHR regime was fully removed for pensioners from March 2025. The standard progressive tax rates offer no personal allowance and rise to 48 per cent above €84,000."

For those considering emigration, timing proves crucial. Denton advises: "Retirees should consider taking their pension lump sum before leaving the UK, as this feature is typically unavailable abroad. This benefit could effectively be lost if not accessed beforehand."

Britain's 25 per cent tax-free pension withdrawal remains unavailable in foreign tax regimes, including Italy's preferential system.