Italy Offers British Pensioners 7% Tax Incentive to Relocate

British pensioners seeking a more affordable and pleasant lifestyle can now benefit from a significant tax incentive in southern Italy. The Italian government has introduced a 7% flat tax for foreign retirees who relocate to selected smaller towns and villages. This initiative aims to attract residents to areas experiencing population decline and stimulate local economies.

Eligible pensioners can enjoy this reduced tax rate on their overseas income for up to ten years. To qualify, retirees must move to municipalities with fewer than 20,000 residents in southern regions such as Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Apulia. Since 2022, specific areas in central Italy, including Abruzzo, Marche, Umbria, and Lazio, have also become eligible.

This tax scheme, initially introduced by the Italian Budget Law in 2019 as a five-year program, was recently extended to provide a decade of benefits for participants. Both Italian and foreign nationals who have not been tax residents in Italy for the past five years and are receiving a foreign pension can take advantage of the offer.

Under the scheme, foreign-source income, including pensions, will be taxed at a flat rate of just 7%. This represents a significant reduction compared to Italy’s traditional progressive tax system, which can reach rates of up to 43% for higher incomes. The flat tax must be paid annually in a single installment and encompasses most types of foreign income. However, it is essential for participants to understand the implications of double taxation treaties that may apply to their individual circumstances.

Originally, the flat tax applied to foreign pensions was set at €100,000 (approximately £87,000) per year. Starting in 2025, new regulations will increase this limit to €200,000 (around £174,000) per year for individuals opting into this tax regime. Notably, those who began paying the lower rate in 2024 can continue to do so until their tax agreement concludes.

This initiative is part of a broader strategy by the Italian government to revitalize rural communities and attract foreign investment. By encouraging pensioners to settle in less populated areas, the government hopes to bring new life to towns that have faced demographic decline. As the global population ages, Italy’s attractive climate, rich culture, and now favorable tax policies make it an appealing destination for retirees looking for a change.