Full credit to Frenk from the Limerick FI Group for providing this blog post.
Information may not be accurate at time of reading and should be used for observational purposes only. Thank you
What is Geoarbitrage
Most people will work hard to earn more and buy a big house which means a big
mortgage for life but you could be stuck in a job you don’t like or too stressful.
An alternative would be to try to save enough and be financially independent and relocate
in order to take advantage of the lower costs of a city/country.
It could be done within the same country, in a lower cost area or in a different country.
It does not necessarily has to be a lower cost city but also somewhere taxes are lower so
your income gives you greater purchasing power.
Case study – Irish Fire
A single, retired, Irish resident who has reached FIRE and no longer wishes to work, may have one or a combination of the
following income streams :
1)Pension\Pensions(state, occupational, private, public sector, foreign..)
If you are over 67 and have enough contributions for the full state pension, you would get 12,156 Euro a year (Irish State
Pensions and foreign State Pensions are taxed by the country that you are resident in).If you are resident in Ireland you get a
tax credit of €18,000, if you are aged 65 or older. To get the State Pension (Contributory), you need to have at least 520 full rate PRSI contributions (10 years contributions).The contributory pension will be paid to you, if you qualify, even if you are
resident in another country. The non contributory pension is not, as it is dependent on your residency.
If you do not wish to join an occupational pension scheme, the two main types of personal pension plan are Personal
Retirement Savings Account (PRSA) and Retirement Annuity Contract (RAC).
Private pension\s (average pension pot in Ireland is approximately €90k ) – Tax on Private sector Irish occupational pension is
always paid, where you are resident but tax on ARFs and vested PRSAs is charged, at source, regardless of your residence
status and the same rule applies, for public service pension(defined benefit).
A maximum of €200,000 can be taken as a tax free pension lump sum. Lump sums between €200,001 and €500,000 are
taxed at 20%. The lump sum limit is 25% of the retirement fund. With an Annuity, when you reach retirement you receive a
regular income for the rest of your life, whereas an ARF allows you to remain in the investment market. Both incomes are
subject to income tax on withdrawals.
2)Stocks, bonds, mutual funds, precious metals, royalties, Etfs, investment trusts, crypto..
3)Property(in most cases paid off primary residence, at the time of retirement ).If you are still
renting and relying only on the state pension, unless you get government assistance or a council
house you will have to rent a property for no more than 400 eur pm.
Estimated monthly costs for a resident in Ireland are 844.56 without rent(likely to rise substantially
in the near future because of the current high inflation).
Family of four estimated monthly costs: approx. €4,810 including rent or mortgage.
I will cover two ways of applying geoarbitrage, only based on figures:
-Relocate to a cheaper location, within the same country
-Relocate to cheaper country where you also pay less tax, full time or part of the year.
Relocate to a cheaper location within the same country
According to the Irish Mirror, the cheapest place to live in Ireland is Co. Leitrim. This county
is the most affordable place to buy a property, and it is also cheap to rent in this location.
The average house price is €167,000 and rent for a house about 1000 euro a month.
● The best strategy, in my opinion, would be to sell your primary residence and buy for
cash a property in Leitrim and use the difference to live and put the rest in cash or a
low risk investment. It is more tax efficient as you don’t pay CGT (“Capital Gain Tax”) on the sale of your primary
residence so you can realise a potential big gain tax free without touching your pension and
other possible sources of income.
It works best for people who are already in their 60s and don’t have many years left to live.
Drawback could be a period of high inflation that could devaluate your cash, quickly. An
alternative could be to diversify and hold different currencies, precious metals or
government bonds.
Other strategies that don’t work as well in Ireland but depend on a few factors.
● To release equity from the primary residence and use those funds to buy another
property in Leitrim and rent out the original property.
The interest you pay to the bank cannot be offset as allowed expense, if your mortgage is
paid off. It is not tax efficient to do that and rent another property in Leitrim for yourself.
It could work out if you are on the low tax bracket, once retired but it is sub optimal as
interest rates are quite high for equity release and you always have to pay property tax
and maintenance for two houses instead of one.
The positive is that in case of high inflation the value of your properties should not
decrease and rent may keep up with inflation, if allowed by the Government.
● To Rent out your primary residence and rent a property for yourself in Co.
Leitrim.
Rents are quite high in Ireland and you pay tax on your rental income.
It could work out if you are on the low tax bracket but rents can go up quickly if
there is high inflation but at the same time, your primary residence should hold its
value.
This move to Leitrim would make sense mostly because accommodation costs are
much lower in Leitrim but it depends on where you live now as it may not make a
big difference to you, if you already live in a relatively cheap location in the country.
You are likely to have cheaper prices for eating and drinking out but grocery prices
may even be higher as you may have to shop local where there is less
competition.
All the rest would be pretty much the same as other parts of Ireland.
You may lack the services such as schools and hospitals you enjoy in different
parts of Ireland.
The best examples in Europe are the following:
Portugal
Pros
● Consumer Prices – 6.14% Rent Prices -50.03% Restaurant Prices -49.23% Groceries Prices
– 37.09%
● Under the NHR scheme, no tax is paid on Foreign Income, Dividends ,Royalties,
Interests, Capital gains for 10 years. No tax on Crypto gains.
● Lower heating bills. Eu citizens don’t need resident visa to move there.
● A single person estimated monthly costs are 533€ without rent
● Good healthcare and services.
Relocate to cheaper country where you also pay less tax, full time
or part of the year
Cons
● 10% tax on pensions may be high for those who have only the state pension in Ireland
● The NHR scheme does not last for more than 10 years.
● Language barrier
● If you are living mostly on gains from a trading account you pay high taxes.
Verdict
● Highly recommended for those with big capital gains from crypto.
● Cost of living yearly savings Eur 3732, excluding rent.
● If you don’t own a property in Ireland you can save some money, renting in Portugal.
● Rural properties could be bought cheaply.
Greece
Pros
● A single person estimated monthly costs are 628€ without rent
● Consumer Prices – 25.72% Rent Prices -69.57% Restaurant Prices – 34.28% Groceries Prices – 28.46%
● Pensioners will for the first 15 years enjoy a flat tax rate of 7% for any kind of foreign income.
● Eu citizens don’t need resident visa to move there.
● Private health insurance recommended but not expensive. Lower heating bills.
● Capital gains from the sale of stocks, exempt from income tax. If the holding rate is higher than 0.5% of the
share capital, a capital gain tax is applied at a rate of 15%.
Cons
● Flat tax lasts only for 15 years
● Public healthcare not as good as Portugal or Italy.
● Language barrier
Verdict
● One of
the best options in Europe for those who wish to retire, before getting the state pension.
● Cost of living yearly savings Eur 2592 , excluding rent.
● If you don’t own a property in Ireland you can save some money, renting in Greece
Italy
Pros
● Consumer Prices -12.30% Rent Prices -50.25% Restaurant Prices – 11.65% Groceries Prices – 7.17%
● A single person estimated monthly costs are 744€ without rent
● Good healthcare and services. Lower heating bills in the south.
● 7 % flat-tax rate applicable on any income sourced abroad, not just on pensions, for retirees who move to a town
with a maximum of 20,000 residents in the regions of Sicily, Sardinia, Campania, Basilicata, Abruzzo, Molise or Puglia
● Eu citizens don’t need resident visa to move there.
Cons
● Language barrier,cost of living, excluding rent,not much different than Ireland.
● Flat tax only available in limited areas and duration is only 10 years.
Verdict
● Cost of living yearly savings Eur 1200, excluding rent.
● If you don’t own a property in Ireland you can save some money, renting in Italy. Properties in rural locations can
be bought for little money.
● Not one of the best options
Albania
Pros
● A single person estimated monthly costs are 388.84€ without rent.
● Consumer Prices -52.62% Rent Prices -79.54% Restaurant Prices – 66.08% Groceries Prices -52.74%
● No tax on pensions
● Lower heating bills.
Cons
● Not good healthcare and services(poor water quality, blackouts, high corruption)
● It requires a resident visa for Eu citizens as it is not in the UE.
● Private health insurance a must, given the poor state of the public hospitals.
● Lack of cheap international flights only available in the nearby Corfu. Language barrier
● High Income tax up to 23% for non pension income.
● Being not in the EU is subject to more Covid restrictions for international travel.
Verdict
● Cost of living yearly savings Eur 5472, excluding rent.
● Properties not too far from the beach, can be bought for little money.
● If you don’t own a property in Ireland you can save some money, renting in Albania
● Good option for part of the year but there are better alternatives if you wish to move abroad full time.
Cyprus
Pros
● Consumer Prices – 22.91% Rent Prices – 46.79% Restaurant Prices – 24.64% Groceries Prices – 22.36%
● A single person estimated monthly costs are 689€ without rent
● Decent healthcare and services. Lower heating bills.
● Eu citizens don’t need resident visa to move there. English spoken by most people.
● Foreign Pensions taxed at the flat rate of 5% on amounts in excess of EUR 3,420
● There is no capital gains tax on sales of shares. No income tax below 19.500 Eur.
● Non dom taxation available.
● Good connections with the major european destinations with low cost flights
Cons
● In winter, population drops and some businesses shut down.
● Geographically far from Ireland.
Verdict
● Best all rounder, in particular for wealthier people who have foreign rental income, private pensions…
● Cost of living yearly savings Eur 1860, excluding rent.
● If you don’t own a property in Ireland you can save some money, renting in Cyprus
Hungary
Pros
● Consumer Prices – 47.30%
● Rent Prices -71.40% Restaurant Prices – 59.45%Groceries Prices – 44.78%
● A single person estimated monthly costs are 478 Eur without rent
● Pension income is exempt from tax.
● Eu citizens don’t need resident visa to move there.
● Very central location in the heart of Europe.
Cons
● Foreign source investment incomes are subject to income tax for tax residents at the flat-tax rate of 15 percent. It could be lower in other countries.
● Healthcare not as good as Italy or Portugal but cheap private insurance.
● Language barrier
Verdict
● Cost of living yearly savings Eur 4344,excluding rent.
● Good option but there are better alternatives.
Montenegro
Pros
● Consumer Prices – 56.33% Rent Prices – 71.66% Restaurant Prices – 58.17%Groceries Prices – 50.10%
● A single person estimated monthly costs are 451€ without rent.
● Personal income tax of 9% is levied on salaries, property-related income, and investment income
● Low corporate tax at 9%
Cons
● It requires a resident visa for Eu citizens as it is not in the UE.
● Healthcare not as good as Italy or Portugal but cheap private insurance.
● Lack of cheap flights only available in Croatia.
● Language barrier
● Being not in the EU is subject to more Covid restrictions for international travel.
Verdict
● Cost of living yearly savings Eur 4728, excluding rent.
● One of the lowest tax on pensions and other income but better alternatives.
● If you don’t own a property in Ireland you can save some money, renting in Montenegro.
Bulgaria
Pros
● Consumer Prices – 50.51% ,Rent Prices – 78.65% ,Restaurant Prices -61.87% ,Groceries Prices -46.77%
● A single person estimated monthly costs are Eur 435 without rent.
● All pensions are exempted from tax.
● Eu citizens don’t need resident visa to move there.
● Low corporate tax rate at 10%
● Capital gains tax 10%.Other income taxed at 10%
Cons
● Poor healthcare and services. Private health insurance a must, given the poor state of the public hospitals.
● Language barrier
Verdict
● One of the top three for low cost of living.
● Cost of living yearly savings Eur 4900, excluding rent.
● One of the lowest tax on pensions and other income.
● If you don’t own a property in Ireland you can save some money, renting in Bulgaria and if you prefer to buy property prices are
very cheap.
Mixed strategy
You can keep living as resident in Ireland but benefit of a lower cost of living, abroad, for part of the year but
for no more than 6 months. That could be done, buying a foreign property, you can rent short term when you
are not there and at the same time, rent your property in Ireland, when overseas.
Or ,simply, you can rent a property overseas only when you are there and even just renting out a room in your
property in Ireland(if you own one), in most cases, should cover the rental costs when you are abroad.
Main advantages to moving overseas, depending on your lifestyle:
● Much cheaper rents if you are renting. In most of those countries you can buy a cheap property but not in the
more touristy areas.
● Save a lot on CGT or pay no CGT at all in certain countries.
● Private health costs much lower in certain countries.
● Cost of alcohol, cigarettes, eating and drinking out much lower than Ireland, in most of those countries.
● If you are a home owner, you can rent out your Irish property and rent in one of those countries for, often, little
money.
● Lower your heating bills as most of those countries are warmer than Ireland, at least for the summer.
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