We’ve been getting enquiries from expatriates living in Cyprus who are thinking of selling their UK property. What are the pros and cons, and how can you invest the proceeds effectively and tax efficiently as a resident of Cyprus?
Some are looking for capital growth for their later years, while others want to replace the rental income they used to earn from the property.
We’re also hearing from expatriates in Cyprus who are trying to decide if they should sell their UK property or hold on to it. If you are in this situation, here are some considerations to think about:
- Do you intend on living in Cyprus indefinitely? Or do you want the peace of mind of knowing you (or your spouse) have a home available should you return to the UK in future?
- If it is a family home that you’d like to leave to your children, would they want to live in it or sell it to release the capital? If it is the latter, you could sell now, invest the capital for growth, and arrange for the investments to pass onto them tax-efficiently.
- While UK rental income may be attractive, it can be eroded by repair costs, non-payment by tenants or void periods. Putting the property back into rentable condition after a tenant leaves can be quite costly.
- The UK personal income tax allowances of £12,570 at the basic 20% tax band and £50,270 at the higher 40% rate are frozen until at least April 2026. This is estimated to bring 1.3 million more people into income tax liability.
- Income from investments is often tax free in Cyprus.
- A few years ago, the UK government considered limiting the personal allowance for non-UK residents. The proposal was shelved at the time, but now that the UK is no longer an EU state it is something they may think about again in future.
- You can no longer deduct mortgage expenses from your rental income to reduce your UK tax bill. Buy-to-let tax relief has been replaced by a 20% tax credit, which is not as beneficial for higher rate taxpayers.
- The annual UK capital gains tax allowance is frozen at £12,300 for individuals (£6,150 for most trusts) for the next five years.
- Since 2015, expatriates no longer escape UK capital gains on selling UK property, though they are only liable on the gain made from 6th April 2015. From April 2019 this was extended to include all UK real estate.
- You will not need to pay any tax in Cyprus, regardless of how much gain you make, as capital gains tax in Cyprus is only charged on local property.
- If you are hoping to become a non-UK domicile to avoid UK inheritance tax on your worldwide estate, having property in the UK does not help your case. And UK assets are always liable to UK inheritance tax, regardless of domicile, if your UK estate is above the £325,000 threshold (also frozen until 2025). There is no inheritance tax in Cyprus.
- While property can be a solid investment, it locks your money away in a highly illiquid way. If you need to release funds, you may not be able to sell quickly or for the right price. And if you just need, say, €20,000, you cannot sell just part of a property. In contrast, equity and bond funds can usually be sold fairly quickly and just the amount you need, not the whole investment.
- While both shares and property have the potential to provide good returns over time, there are always risks with investments. And the key to reducing risk is diversification. For most people, it is easier to obtain effective diversification through capital investments (which can include shares in property funds), than with bricks and mortar. Financial assets also offer more flexibility to change strategy in line with market or personal developments.
Living in Cyprus and selling UK property| Get advice
If you would like to discuss any of these issues further, or would like specific advice for your situation, please don’t hesitate to get in touch with our Cyprus advisers. We are happy to help you weigh up the pros and cons of selling or keeping your UK property.
Likewise, if you have recently sold a property, we can recommend ways for you to invest the capital very tax-efficiently to suit your circumstances and objectives, for example, aiming to match the rental income you used to receive, but with less tax to pay.
Contact us now for cross-border, specialist advice.
All advice received from Blevins Franks is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation or investment advice.