Expatriates in Cyprus can take steps to ensure the right money passes to the right hands at the right time in the most tax-efficient way.
Expatriates in Cyprus can take steps to make sure the right money passes to the right hands at the right time in the most tax-efficient way possible.
We all sleep better when we feel confident that our affairs are in order, and as we get older we think more about the legacy we will leave to future generations; specifically, how and to whom our assets will pass on our death.
Increasingly, estate planning is a major concern for our clients. You have worked hard to build up your wealth and want to pass it on to your children and grandchildren to help them as they make their way through life. However, you want to ensure the money is used wisely, and at the time your heirs need it most. But how can you have control over what happens after you are gone? You may also have many years left in retirement yourself, and so need to continue to receive income or take capital in the meantime.
Why gift with control?
Here are some situations we often come across, which may resonate with you:
- You want to leave money to your children but are concerned about how they will handle it at this stage in their life, or about whether their marriage will last.
- Or maybe you would prefer them to receive their inheritance later in life, so they can use the funds to ensure they have a comfortable retirement and do not have to worry about medical costs as they get older.
- You want your grandchildren to receive a good education, without being saddled with debt, and would like to contribute to their university/course fees. You may like them to have access to a certain amount of capital while they are at university, then receive the balance of their inheritance when they would be looking to buy their first property.
You may be able to set capital aside now to plan for the above situations, but need to leave other funds available for your and your spouse’s use through your retirement years – however long that turns out to be. So you need to have full ownership of these funds now, with withdrawal and income rights, but set up in such a way that they can easily pass to your chosen beneficiaries when you die. Ideally you want certainty of succession without the need for probate.
Tax considerations
And then there is the issue of tax. As much as possible you would like all of your hard-earned wealth to pass to your chosen heirs, rather than a large part of it going to the taxman.
Although there is no inheritance tax in Cyprus, UK nationals usually remain liable to 40% UK inheritance tax on their worldwide assets (after allowances), since it is determined by domicile, not residence. You can be deemed a UK domicile even after many years of living in Cyprus.
While it is possible to adopt a domicile of choice in Cyprus by severing all ties with the UK, domicile law is extremely complex, so you need to take specialist, personalised advice.
Also, new rules could mean that returning to the UK for a relatively short period – say, due to family illness – could reignite inheritance tax liability for non-domiciles. In any case, UK assets are always liable to inheritance tax (though the allowances may mean there is no tax to pay).
Your estate planning solutions should therefore be tax favoured ones. And not just for inheritance tax purposes, but also during your lifetime, so that you can enjoy a tax-efficient income today.
Five things expatriates need to know about UK inheritance tax
Cyprus succession law
Cyprus law imposes restrictions on how you can divide up your worldwide estate (excluding property outside Cyprus). You cannot freely leave assets to whomever you wish, as you generally can in the UK.
Under the 2015 EU succession regulations (‘Brussels IV’), the default position is that local succession law will apply to foreign nationals living in the country – so the Cyprus succession rules will apply to British expatriates here.
However, foreign nationals can specifically opt, through their will, for the law of their country of nationality to apply on their death instead of that of their country of residence. This is a very complicated area of the law, and we recommend you seek advice regarding this as making a mistake can be very costly.
Cross-border estate planning
Wills are an essential part of estate planning, but are limited as to what they can achieve. If you want control and certainty, as outlined above, you need careful planning and tailor-made solutions.
In our experience it is possible to structure your affairs, for both Cyprus and the UK, so that the right money passes to the right hands at the right time, at the same time as reducing tax during your lifetime and after it. And this does not need to involve complicated administration either.
It is however very important to use robust arrangements which are compliant in Cyprus and the UK. As an expatriate you are likely to live in one country, have heirs in another and possibly assets in other jurisdictions. Cross-border tax and estate planning has become more complex over recent years, and with today’s automatic exchange of financial information, you need to ensure your arrangements would stand up to scrutiny by the tax authorities.
Creating and maintaining a good ‘estate plan’ is primarily about ensuring your wishes are carried out in the way you wish, but taking account of relevant legal and tax considerations. The plan needs to be flexible to accommodate events like more grandchildren, divorce or re-marriage within the family. It is vital that you review it on a regular basis, so if you set up your plan years ago it will be time to look at it again.
Estate planning is a very specialist area and professional advice from an experienced tax and wealth manager is essential.
Contact Blevins Franks to discuss your estate planning options
The 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.
