13-05-2025
Thousands of British expats pay no UK tax on state pension
Thousands of British retirees living in Europe are claiming state pensions of up to £35,000 a year without paying UK tax, analysis shows.
There were 480,906 recipients of the British state pension living in the European Union as of August 2024, according to the latest figures from the Department for Work and Pensions (DWP).
Of these, some 42,000 pensioners in Europe receive UK state pensions that exceed the £12,570 personal allowance.
It means they would be liable to pay 'retirement tax' in this country but are spared the bill because they are no longer UK tax residents.
Britain's complex state pension system means some are raking in state pensions three times larger than the 'full' amount of £11,976.
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.
It comes as millions of their UK counterparts are being pushed into paying income tax.
This is because thresholds have been frozen since 2021 under the Tories 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.
State pensioners being forced to pay income tax is a politically contentious issue – which Rishi Sunak, the former Prime Minister, dubbed the 'retirement tax'.
The 'triple lock' ensures payments rise by the highest of inflation, wage growth or 2.5pc each year.
Recipients of the British state pension who live in the EU, European Economic Area (EEA), or Switzerland receive the same uplift.
But, 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.
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.'
The state pension is paid to nearly 13 million retirees. Of those, around 4.2 million are on the new state pension, introduced in 2016.
The new 'full' state pension rose by 4.1pc to £11,973 a year last month.
The remaining 8.8 million receive the old state pension, the full 'basic' element of which has hit £9,175 a year.
But both pensions can be boosted above the 'full' amount. Those on the old state pension can also draw money from an additional earnings-related pension, commonly known as Serps, which can boost payments by up to £11,356 a year.
Delaying the start date for drawing a state pension can also raise the amount you receive.
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.
'And for those who receive high amounts of Serps, the state pension is far more generous than those who paid National Insurance during the non-Serps years, or when the generosity of Serps was reduced.
'This means that 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.'
