The Best Tax Havens for UK Pensioners
British Pensioners often have a problem making their pension stretch to cover their expenses and then there is the dreaded UK winter lasting almost 7 months. Many pensioners elect to buy properties in Spain and spend the European Winter there and then return back to the UK for summer. This works for many people but the UK still taxes their pensions at source. With inflation reducing the buying power of staples why not checkout some Tax Havens where UK pensions are only taxed at 5 % and 15 % respectively?
There are two sun filled Mediterranean Tax Havens that offer UK Pensioners a wonderful living standard and low taxes. Living in these locations without a doubt does not also preclude trips back to the UK to visit loved ones provided you do not exceed 90 days are spent in the UK. These two jurisdictions are Cyprus and Malta.
Let’s investigate Cyprus first. The island is only a four hour flight away from the UK. The cost of living is relatively low and rated as one of the cheapest countries in Europe, which is a big advantage for immigrants from Western Europe, particularly pensioners. The infrastructure in Cyprus is well developed with excellent communications and transport links. There are numerous restaurants, shopping malls and everything else required to make your home. Crime is also very low, there are good schools and residency is easy to obtain for members of the EU.
Now let’s evaluate the rate of tax for pensioners. First of all in accordance with the UK/Cyprus Tax Treaty British Pensioners are only taxed at 5 % with an annual exemption of Euro 3,420. This is a huge difference to what the UK will charge its pensioners. In the UK pensioners receive a tax free allowance of £7,475 and 20 %, 40 % or even 50 % income tax. However for pension incomes over £24,000 the tax free allowance starts to reduce, making moving abroad a more viable strategy for those with larger pensions. If a pensioner is between 65 and 74 in the UK the tax free allowance is £9,940 and for over 75’s is £10,090 in the 2011/12 tax year.
On top of the aforesaid beneficial tax breaks there are many others. Income tax is free on interest received by individuals, 50 % of interest income from companies, All Dividends, profits in relation to permanent establishments conducting a trade abroad, profits from the sale of shares and the income from employment provided they are paid abroad to a non-resident employer. All this boils down to a very tax efficient environment to spend your retirement. This is tax planning with a difference!
The second most popular destination for UK pensioners seeking a cheap, warm and low tax environment is Malta. Although the standard of living in Malta is high the cost of living there is surprisingly low, even lower than Cyprus! There are great recreational facilities like golf clubs, numerous restaurants, the crime rate is very low and medical facilities are rated 5th in the world by the World Health Organization.
In Malta there is a Permanent Residence Scheme designed to attract well-off non-working retired expats. At the time of writing this article the scheme had been temporarily suspended in December 2010 but will be available again henceforth. The main benefit of the rules is that income tax is taxed at a flat rate of 15 % with a minimum tax of Euro 4,200. Under the old rules it was compulsory to have an annual income of at least Euro 23,500 or assets of Euro 350,000 to to entitle you for residency. Additionally a pensioner had the ability to remit Euro 14,000 into the country each year plus Euro 2,000 for each of your dependents tax free. Other interesting tax avoidance benefits are that overseas capital gains are tax free and are allowed to be remitted tax free to Malta. Overseas income that is not remitted is also tax free. Remitted income is taxed at a marginal rate of 35 %.