Cyprus residents to have UK government service pensions taxed in UK


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.

Under a new UK/Cyprus double tax treaty, UK government service pensions will no longer be taxed in Cyprus and will be liable to UK tax.

A new double tax treaty agreed between Cyprus and the UK includes one major change: UK government service pensions will no longer be taxed in Cyprus and will be liable to UK tax.

There are many reasons why UK nationals choose to live in Cyprus once they retire. Most relate to lifestyle rather than taxation, but the Cyprus tax regime for UK pension income is rather attractive. Unfortunately, it looks almost certain that those who receive a UK government service pension will lose these advantages.

The UK and Cyprus signed a new double tax treaty in March. This will replace the current convention which came into force in 1974. The new treaty does not introduce significant changes for most British expatriates living here – with the notable exception of government service pensions.

While most UK pensions will remain taxable in the country of residence, this will no longer apply to pensions paid in respect of national or local government service (such as civil service, teachers, armed forces, police etc and some NHS pensions).

Once the new treaty comes into effect, government service pensions will be solely taxed in the country they are paid – so in the UK – under the usual UK income tax rules, even if you are resident and paying other taxes in Cyprus.

This is actually not unusual. Cyprus has been a rare exception until now, and double tax treaties with most other countries grant exclusive taxing rights for UK government service pensions to the UK.

This is of little comfort to those in receipt of these pensions, however, as many will face more tax in the UK than they did here in Cyprus.

Any questions? Contact us for personalised advice

Note that the new double tax treaty is not yet in force, so for the moment government pensions continue to be taxed in Cyprus as usual. It still needs to be ratified by both countries and will come into effect in Cyprus from the 1st January of the year following ratification. In the UK it will start from the 6th April for income and capital gains tax purposes.

All other foreign pension income will continue to receive special treatment in Cyprus, being taxable in one of two ways. You could either opt for a flat rate of 5% (with a €3,420 allowance) or add it to your annual income and pay the relevant scale income tax rates, ranging from 20% to 35%. You can choose whichever method works best for you each year.

Even if this news does not affect you, it is a good idea to take personalised, regulated guidance about your pension options.

Blevins Franks offers expert, personalised pensions advice to expatriates living in Cyprus. Our pension specialists are regulated by the Financial Conduct Authority in the UK, and together with our local financial advisers in Cyprus help you find the most suitable course of action for your individual circumstances and objectives.

Blevins Franks accepts no liability for any loss resulting from any action or inaction or omission as a result of reading this article, which is general in nature and not specific to your circumstances. Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should 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.