Cyprus capital gains tax is only charged on the sale of Cyprus property. Gains from shares and the sale of overseas property are exempt – making Cyprus a very attractive tax regime to relocate to.
Cyprus offers various advantages, and one of the tax benefits of living there is the fact that capital gains tax is so limited. Only gains arising on the disposal of local real estate are chargeable. Gains made on the sale of shares, company shareholdings, overseas property or any other assets are not taxed in Cyprus.
If you are planning to move to Cyprus, therefore, it may be worth waiting until you are tax resident here to sell the assets you own in the UK or elsewhere.
If you are considering leaving the UK and are still exploring your options, it is definitely worth adding Cyprus to your list, especially if you have a company to sell and it can wait until after you leave the UK.
Cyprus capital gains tax on property
Only property located in Cyprus is liable to capital gains tax. It applies a flat rate of 20%, to both residents and non-residents, as follows:
- Cyprus real estate (‘immoveable property’)
- Unlisted shares of companies which own real estate in Cyprus
- Shares in companies which indirectly own immoveable property in Cyprus and at least 50% of the market value of the shares is derived from such immoveable property.
Shares listed on any recognised stock exchange are excluded from these provisions. Gains made prior to 1980 are not charged and property purchased between July 2015 and December 2016 is exempt from tax, whenever it might be sold.
If you sell a property in the UK or elsewhere as a Cyprus tax resident, it won’t be liable to any tax in Cyprus. It may still be taxed in the country where the property is located. In the UK, tax is calculated on the gains accrued since April 2015 (2019 for commercial property or land).
Exemptions and allowances
If you sell one Cyprus property and use the gain to buy another, you will not need to pay capital gains tax at the time. In effect, the gain made on selling the old property reduces the cost of the new one, and you will only pay tax when you come to sell the new property.
Otherwise, if the property you are selling is your main residence and you have lived there for at least five years, you may benefit from a single lifetime allowance of €85,430 on the tax due on the gain.
This is a one-off allowance, and once fully utilised, no further exemptions or allowances are available. If this exemption is not fully utilised, the balance cannot be carried forward to use against the disposal of a future main residence.
Since this exemption is for main residences, it does not apply to non-residents. However, they do receive a lower lifetime allowance of €17,086. Sales of agricultural land attract an allowance of €25,629 (but €85,430 is the maximum CGT allowance you can receive).
No capital gains tax is applied when a property is transferred on death, and you can also gift property to spouses or members of the family up to the third degree without any tax liability arising. Gifts to a charitable organisation are also exempt.
There can also be exemptions where land and buildings are transferred into or out of family companies, although there are restrictions as to length of ownership etc.
Calculating chargeable gains
When calculating capital gains on real estate the purchase and improvement costs may be deducted. An ‘indexation’ allowance is given for inflation, based on the Cyprus Consumer Price Index.
Only gains arising from January 1980 are chargeable. You have a choice of using the actual purchase cost upon which to base your capital gains tax calculation, or the value of the property as at January 1980.
Cyprus capital gains tax on shares
While many counties will tax the gains made on the disposal of shares and other securities, they are tax free in Cyprus.
While your investment income may be taxed (though this depends how you hold your investments and how long you have lived in Cyprus*), any profit you make on your original investment is not.
This includes company shareholdings. If you are planning to sell your company before you retire in Cyprus, you may wish to wait until you are officially tax resident here.
Other Cyprus tax benefits
Besides limited capital gains tax regime, there are other tax benefits to living in Cyprus:
- Foreign nationals generally benefit from tax-free investment income for 17 years
- Favourable tax rates for foreign pension income
- No local inheritance tax and no form of wealth tax
How we can help
If you are thinking of retiring in Cyprus, we’ll be happy to guide though all the Cyprus tax implications and how you can make the most of the beneficial tax regime. We can also advise on timing your move to save tax, and if and when you should sell the assets you own outside Cyprus.
We’ll also explain the local succession law, which imposes forced heirship, and how you can avoid it.
Blevins Franks has been advising UK nationals moving to Europe for 50 years and have had an established office in Paphos for over 20 years. We provide integrated, cross-border advice on taxation, estate planning, investing and pensions.
Get in touch with our advisers today.
