Pensions in Malta

One aspect of this is what happens with your UK pensions. This will depend to a large extent on what type of pensions you possess, who does the UK/Malta Double Tax Treaty given the taxing rights in respect of those schemes and what tax will therefore be payable. In some cases, the interaction between two tax systems and how the Double Tax Treaty deals with this can deliver positive or negative results.

Leaving your pension in the UK

If you have a ‘Defined Contribution’ (DC) pension, you have many ways to access your pension funds – one lump sum, across numerous withdrawals, receive a regular income until it runs out (all forms of drawdown) or purchase a lifetime income (annuity). 

‘Defined Benefit’ (DB) pensions, on the other hand, are company pensions, dependent upon your final salary and length of service.  They provide a regular income for the whole of retirement. You cannot access benefits as cash, should never run out of funds, and lifetime payments usually pass to your spouse (where applicable) on death. 

Government service pensions for UK purposes include civil service, local authority, police, fire, armed forces, most teachers pensions, etc.

Transferring pensions overseas 

If you are planning on moving to Malta, you can also move any non-government pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS) without generating a tax charge if the conditions of the QROPS are satisfied. However, this is a specialist area, and you should take advice specific to your situation.

A QROPS can be used to consolidate several UK pensions (though this can also be achieved through a UK SIPP). Funds would be sheltered from UK taxation on income and gains and are immune to future changes to UK pension rules that may adversely affect you.

Maltese tax on UK pensions

The basis of Malta’s personal tax system is the same as the UK – whether you are resident and/or domiciled.

Whilst there is not a formal definition of the former, you would generally be regarded as resident if you spent 183 days of a calendar year in Malta. Domicile is too complicated to explain here but suffice to say if your origins are the UK, and you are moving to Malta from there, then it is likely you will be considered non-domiciled from a Maltese perspective.

The general position under the Double Tax Treaty is that pensions and annuities are taxable in the country of your residence which in this case will be Malta (exceptionally, government service pensions remain taxable in the UK).

But a Maltese resident, non-domiciled individual benefits from the ‘remittance’ basis of taxation, where non-Maltese source income is only taxable if it is remitted into Malta.

This could mean UK pensions might not be taxed at all if they were not remitted, so a clause in the Double Tax Treaty states if a resident of Malta does not remit the full amount of their UK pension income, that income remains taxable in the UK.

A Qualifying Recognised Overseas Pension Scheme (QROPS) can overcome the issue of having to remit all the income to Malta to avoid UK tax on the income. A pension transferred out of the UK into a QROPS is not liable to any personal UK income tax if the conditions of QROPS are satisfied.

Residence programs

UK nationals wishing to retire to Malta can now do so only by way of three of Malta’s residence programs.

Some of these offer a flat rate of tax - normally 15% - but with a minimum tax payment each year. All require you purchase a property for a minimum value or rent for a minimum annual cost.

Whilst the Permanent Residency Program does not impose a flat rate of tax (you will be liable at the normal scale rates in Malta), it is more expensive in terms of the administration fee, requires the largest investment in terms of renting or acquiring property and that you also have to make substantial other investments.

There is a lot to take in and be aware of and these are really only examples. Good planning can ensure you minimise the tax that impacts you and it helps to do so with specialists in this area. 

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.