Not many UK citizens who are in receipt of a pension in the UK know that in terms of the Double Taxation Relief (Taxes on Income) (United Kingdom of Great Britain and Northern Ireland) Order, 1995 (Articles 18 and 19(2)), UK citizens who take up residence in Malta can have their pensions remitted to them in Malta free of any UK income tax.

The scheme is not available to pensions paid by, or out of funds created by the UK government and paid to an individual in respect of services rendered to the UK. This therefore excludes civil service pensions and similar state pensions.

The UK pension which is remitted net of any UK tax to Malta is then taxed at 15% in Malta, provided the pensioner has obtained a Maltese Permanent Residence Permit. UK income tax on pensions is 40% and it therefore becomes immediately obvious that any UK citizen who takes up Maltese residence and remits his pension to Malta will make a tax saving of 25% on his or her entire pension, particularly for persons who are in receipt of higher pensions.

Permanent Residence Permits are granted on condition that the applicant has a clean criminal conduct and is in receipt of annual income (or pension, or both) of at least £16,000. The net yearly minimum cost of having a residence permit in Malta is £5,800 consisting of a required minimum annual rental of £2,900 and a minimum income tax liability of £2,900.

A quick calculation will therefore show that any UK citizen in receipt of a pension in excess of £15,000 annually, will begin saving on his tax liability once he or she takes up residence in Malta.

Below is a calculation of the potential savings based on a pension being paid to a single person under 65 years of age; savings for elder and married people can be greater.

Pension

UK tax

Malta tax and PRP costs

Net savings

50,000

12,952

10,380

2,572

60,000

16,952

11,880

5,072

70,000

20,952

13,380

7,572

80,000

24,952

14,880

10,072

90,000

28,952

16,380

12,572

100,000

32,952

17,880

15,072

150,000

52,952

25,380

27,572

200,000

72,952

32,880

40,072

300,000

112,952

47,880

65,072

Apart from the substantial savings, UK pensioners would be living in Malta which is now a European Union country and is completely English speaking with a good standard of living, making the tax saving all the more attractive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.