Thinking of relocating to Cyprus? How much tax could you save?

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10.08.23
Cyprus tax

Cyprus tax differs from the UK in many ways – offering several benefits for those looking to relocate there.

Cyprus is a popular choice for UK nationals who want to spend their retirement years in the sun.  The way of life there and the beautiful weather (for most of the year anyway) prove 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 a 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 shares.  (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.

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.

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.  Since 2019 this is taxable in the country which pays the income – so UK government service pensions are taxed in the UK, not Cyprus. If you’re already living in Cyprus you have the option to elect to pay tax in Cyprus on any UK government service pensions until 2024.

A pension commencement lump sum from a UK pension can be taken free of tax in both Cyprus and UK.

Defence contributions – potential 17 years tax exemption interest and dividends

Interest and dividends are subject to ‘defence contributions’ instead of income tax (rental income is 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 rates are:

  • Interest – 30% (reduced to 3% if your income is less than €12,000)
  • Dividends 17%
  • Rental income – 3% (on 75% of gross income)

Note that claiming to be non-domicile of Cyprus could affect a claim to be non-UK domiciled for UK inheritance tax purposes (see below).  If necessary seek advice on tax-efficient ways of holding your investment capital.

Cyprus 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.

Unfortunately, British expatriates don’t necessarily escape death taxes completely.  If you remain UK-domiciled, as many do in spite of living abroad for years, you remain liable for UK inheritance tax.   Assets in the UK are always liable (if above the threshold).  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 over 45 years. Besides its UK office, it has had an established office in Paphos for 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.

Contact us today to make the most of the tax benefits of Cyprus.

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.