There are some tax and financial essentials you need to be aware of and plan for to get the best out of living in Cyprus.
It is not difficult to appreciate why so many people fall in love with Cyprus and consider making it their home. There are, however, some tax and financial essentials you need to be aware of and plan for if you are to get the best out of living in Cyprus.
Most of us would want to make sure we do not miss out on tax planning, pension and wealth management opportunities that could protect our wealth and improve our retirement years.
The starting point is to understand how you become resident for tax purposes. You are tax resident in Cyprus if you cumulatively spend more than 183 days physically present here during a calendar year. Generally, a day of arrival counts as a day of residence and a day of departure as a day of non-residence.
Cyprus takes a split-year approach. If you have not spent six months in the year of arrival, then you will be tax resident from 1st of January of the following year (assuming you stay for more than 183 days assuming that you spend more than 183 days in Cyprus in that following year).
If you arrive in the first six months, then you are tax resident from the day of arrival. From a UK perspective, it may be advantageous to start residency here before 6th April.
British nationals also need to understand how the UK Statutory Residence Test works – it can be harder than you think to lose UK residence. Where you are regarded as tax resident in both Cyprus and the UK under each country’s domestic laws, the UK/Cyprus tax treaty will determine your residence.
Taxation in Cyprus
As a resident of Cyprus, you are taxable on your worldwide income (including all pension income) and gains on Cyprus real estate. Certain income, such as bank interest and dividends, is exempt from income tax, but is taxable in the form of ‘defence contributions’. Rental income is subject to both income tax and defence contributions. However, since July 2015 non-Cyprus domiciles do not have to pay defence tax. Generally, you will be considered Cyprus-domiciled if you were born here or you have been resident for 17 out of the last 20 years.
There is no capital gains tax on the sale of shares.
If you are retired or approaching retirement, Cyprus is a very attractive place to live from tax point of view.
Pension income arising from an overseas source (so from UK pension funds) can be taxed in one of two ways at the taxpayer’s option:-
- At a flat rate of 5% on the excess of €3,420 (this sum being exempt)
- At the normal scale rates of income tax, currently ranging from 0% (for income up to €19,500) to 35% (for income over €60,000).
You can choose the method that works best for you each year.
There is more good tax news for Cyprus – there is no inheritance tax here.
Unfortunately this does not mean that British expatriates escape death taxes completely. If you remain UK domiciled, as many do in spite of living abroad for years, you continue to remain liable for UK inheritance tax. Seek specialist advice on how to avoid or mitigate this tax.
While on the subject of estate planning, you should also understand how probate works in Cyprus, and elsewhere you have assets, and find out if there are steps you can take to avoid the hassle of probate for your heirs.
Another tax issue to consider is the implications of buying and selling property. When is the best time to sell your UK property? When is the best time to buy in Cyprus? You could end up paying tax that could have been avoided, so look into this early if you have not yet left the UK and sold your UK property.
Pensions are another key issue. There are many options for your pensions these days, under the new UK pension freedom rules, and you need to understand how they all work and consider which would work best for you. The Cyprus tax regime can provide opportunities for residents. This is a specialist area, you need professional advice. If you have not yet started drawing your pension, seek advice before you do.
Savings and investments
Last but certainly not least, you need to review your savings and investments. A key rule of any investment strategy is that it should be specifically designed around your circumstances, objectives and risk tolerance. Your circumstances change drastically with a move to a new country and retirement, so your strategy needs to be professionally reviewed to establish how it should be adjusted to suit your new life and goals.
The sooner you carry out your tax and wealth management planning, the sooner you can get on with enjoying your new life in Cyprus.
Any questions? Ask our financial advisers for help
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.