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News / Living In Cyprus And Concerned About UK Inheritance Tax?

Living In Cyprus And Concerned About UK Inheritance Tax?

30.10.15

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Are you concerned about UK inheritance tax? If so, do you realise you may have to pay defence contribution in Cyprus, in spite of the new rules exempting many expatriates?

Are you concerned about UK inheritance tax?

If so, do you realise you may have to pay defence contribution in Cyprus, in spite of the new rules exempting many expatriates?

In July 2015, Cyprus passed a new law exempting those who are non-Cyprus domiciled from defence contribution. This tax is currently levied at 30% on interest, 17% on dividends and 3% on 75% of rental income.

You are domiciled, or deemed domiciled, in Cyprus if:

  • You have a Cyprus domicile of origin
  • You have acquired a domicile of choice in Cyprus
  • You have been resident here for 17 out of the last 20 Cyprus tax years.

While this appears good news for UK nationals living here, if you are not a Cyprus domicile then you are most likely a UK domicile – and this makes you liable for UK inheritance tax.

UK inheritance tax is based on domicile, not residence. It is levied on worldwide assets at 40%, above the nil rate band of £325,000 (potentially £650,000 for a couple). In 2017/18 a further £100,000 allowance will apply when the main home is left to children or grandchildren on death, rising to £175,000 in 2020/21.

If you lose your UK domicile of origin and acquire a domicile of choice elsewhere, you will only be liable to inheritance tax on UK-based assets. Domicile is a complex UK common law concept. If claiming a change of domicile, in the event of a challenge from HM Revenue & Customs (HMRC) the onus is on you (or your family when inheriting your assets) to prove you were non-UK domicile at the date of death. The basic rule is that you are domiciled in the country where your life is centred, and which you regard as your homeland. So you need to cut ties with the UK and create new ones in Cyprus.

Opting to be a Cyprus domicile (even though it means you will have to pay defence contribution) is just one of the steps you have to take. It is not a guarantee in itself, but it will help.

Conversely, if you opt not to be a Cyprus domicile to avoid defence contribution, then you are definitely a UK domicile and liable to inheritance tax on your worldwide assets.

Blevins Franks provides personalised advice on inheritance tax planning and domicile issues, as well as guidance on arrangements available in Cyprus that offer significant tax advantages, such as tax-free withdrawals and roll up of growth, even if you are a Cyprus domicile.

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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; an individual is advised to seek personalised advice.

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.
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