Cyprus is a popular choice for UK nationals who want to enjoy their retirement years in the sun. The easy way of life here and beautiful weather proves very beneficial. But there are tax advantages to relocating here too, and we’re getting more enquiries from people who are thinking of moving here before retirement, particularly when they have assets to sell in the UK.
Cyprus capital gains tax advantages
Once you are tax resident in Cyprus, you are only liable to local capital gains tax on gains arising on the sale of real estate located in Cyprus – property in the UK or elsewhere is exempt. The rate is 20%.
And when it comes to your capital investments, gains made on the sale of shares are generally not taxed in Cyprus, and this includes company shareholdings. (Unlisted shares of companies which own real estate in Cyprus are taxable).
Income tax
As a resident of Cyprus, you are taxable on your worldwide income. Certain income, such as bank interest and dividends, is taxable in the form of ‘defence contributions’ (see below). Rental income is subject to both income tax and defence contributions.
In 2025, your first €19,500 of income is tax free. Tax rates then start at 20% and rise progressively to 35% for income over €60,000. The Cyprus government has published a proposal to increase the initial threshold to €20,500 and the top tax band threshold to €80,000, though this is not confirmed yet.
Beneficial taxation of pension income
If you’re planning to spend your retirement in Cyprus, you’ll be pleased to know that foreign pension income receives special treatment there. You choose how it is taxed each year, as follows:
- At a flat rate of 5% on the excess of €3,420 (this sum being exempt), or
- At the normal scale rates of income tax.
Under the UK/Cyprus double tax treaty, most pension income is taxable solely in Cyprus. The exception is pension income paid in respect of government service.
A pension commencement lump sum from a UK pension can be taken free of tax in both Cyprus and UK, and there may be opportunities in Cyprus to improve the tax position on your pension capital.
Download our Guide to Taxes in Cyprus
Defence contributions –17 years tax exemption for interest and dividends
Interest and dividends are subject to ‘defence contributions’ instead of income tax (rental income is currently subject to both) – but non-Cyprus domiciles are exempt. This means that most UK expatriates escape tax on interest and dividends for their first 17 years of residence.
For those who are liable, the 2025 rates are:
- Interest – 17% (reduced to 3% if your income is less than €12,000)
- Dividends – 17%
- Rental income – 3% (on 75% of gross income)
Under the proposed Cyprus 2026 tax reform, the rate for dividends could reduce to 5% and defence tax may be abolished for rental income (it will remain subject to income tax).
Inheritance tax
There is no inheritance or succession tax in Cyprus. Your assets pass to your heirs without them having to pay any local tax.
British expatriates remain subject to UK inheritance tax on their worldwide estate for up to 10 years after leaving the UK. Assets in the UK are always liable regardless of how long you have lived abroad. This will include your UK pension funds from April 2027. Seek specialist advice on how to avoid or mitigate this tax for your family.
While Cyprus taxation appears relatively straightforward, do take specialist advice to understand how all the rules affect you and make sure you are paying tax in the right country. Confirm 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 advice before you dispose of UK assets to ensure you do that as tax-efficiently as possible.
Blevins Franks has been advising UK nationals moving and living in Europe for 50 years. Besides its UK office, it has 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 to offer.
Find out how we can help you plan a smooth and tax-efficient move to Cyprus
