Cyprus tax in 2026 – tax reforms make the island an even more attractive retirement destination

Following tax reforms in Cyprus for 2026, we look at what has and has not changed for income taxes and capital gains tax this year.  

Cyprus has always offered attractive tax benefits for UK nationals looking to enjoy their retirement years in the sun. Besides tax advantages for pension income and no inheritance tax, there is no capital gains tax on overseas assets such as property and company shareholdings.

And the new Cyprus tax reform package, in effect from 1 January 2026, has reduced most income and capital gains liabilities.

Cyprus income tax 2026

Cyprus residents will pay less income tax this year.  The income threshold where tax starts being applied has increased from €19,500 to €22,000.   The other income bands have all also increased, with the top 35% rate now applying to income over €72,000 as opposed to last year’s €60,000.

Therefore, someone earning €50,000 is €985 better off this year, while someone earning €100,000 pays €1,585 less tax.

Some new income tax deductions have also been introduced this year.  If  you have dependent children, scaled deductions will apply based on the size of your family and annual income.  Further deductions are available for students aged up to 24 years.  Other new tax reliefs can apply for rental income or mortgage interest on a primary residence, or for making your home eco-friendly.  Speak to your tax accountant to confirm which deductions, if any, are applicable to you.

Foreign pension income, whether received from the UK or another source outside Cyprus, continues to benefit from the special flat rate of tax of just 5%.   The first €5,000 is exempt (up from €3,420).   Those on low incomes can choose to be taxed at the scale rates of income tax.

This special 5% tax on foreign pensions makes Cyprus a highly attractive country for retired expatriates.

Special Contribution for Defence

Certain types of income in Cyprus are subject to Defence Contributions rather than to income tax.  Non-Cyprus domiciles continue to be exempt.

The rate applied to dividend income has reduced from 17% to 5% from the start of 2026.  Interest income remains subject to 17% defence tax, but it was cut from 30% to 17% last year.  Rental income used to be subject to both income tax and 3% defence contributions, but it is now only liable to income tax.

The Special Contribution for Defence only applies to residents of Cyprus who meet the criteria to also be a Cyprus domicile.  The domicile status generally applies to anyone who has Cypriot nationality and foreign nationals who have been resident in Cyprus for over 17 years. UK nationals moving to Cyprus, therefore, are exempt from tax on interest and dividends for their first 17 years there.

It now possible to extend the 17-year period for two five-year periods. However, this comes at a very hefty cost of €250,000 per term, so it will not be of value to most people.

Capital gains tax

Most British and other foreign expatriates living in Cyprus only face local capital gains tax on the sale of Cyprus property. Gains from shares and the sale of overseas property are exempt.

If you sell Cyprus real estate, capital gains tax is applied at rate of 20% on the taxable gain.  If you use the gain made on selling one property to buy another, you do not pay tax on the sale of the first property. There are no changes here for 2026.

What does change – and improve – are the lifetime exemptions.  These exemptions are essentially tax-free allowances, but the limit is applied to your lifetime and not per property sale.  The exemptions have increased for 2026.

Inheritance tax

Another highly beneficial aspect of retiring in Cyprus is that there is no inheritance or succession tax there.  Nothing has changed in this respect, and you can continue to pass assets to your heirs without them having to pay any local tax.

Corporation tax

This is one area that did see a tax rise this year.  Cyprus’ corporate tax rate has increased from 12.5% to 15% from 1 January 2026.

Cryptocurrency

Gains made on cryptocurrencies now suffer tax at 8% going forward.  This applies whether you sell or gift a crypto asset, exchange it for another one, or use cryptocurrency to make a payment. Any losses made from this type of investment can only be off set against other crypto profits made that year; they cannot be transferred.

Making the most of the Cyprus tax regime

Compared to some other countries, Cyprus taxation can be relatively straightforward for retired expatriates.  Nonetheless, do take specialist advice to understand how all the rules and latest reforms affect you, as well as to confirm that you are paying tax in the right country.  Establish if you are holding your assets in the most tax-efficient way for Cyprus as well as to achieve your objectives for yourself and your heirs.

If you have not yet left the UK, take personalised advice well in advance of moving.  Timing when you sell UK assets can make a significant difference to your tax liabilities.  Professional cross-border advice will ensure you take full advantage of the Cyprus tax regime and that your move is as seamless and tax efficient as possible.

Blevins Franks has been advising UK nationals moving and living in Europe for 50 years. Besides our UK office, we have had an established office in Paphos for over 20 years now.  We can help you plan your move to the island, or, if you already live there, review your wealth management to help make sure you take advantage of all the tax benefits Cyprus has to offer.

Contact us today