The new UK tax year started on 6 April, so how will this impact your pocket? UK tax changes can affect you even if you are living in Cyprus, so here we outline the key announcements in the last two UK budgets.
If you are weighing up whether to relocate from the UK to Cyprus, this may prompt you to investigate the tax advantages of being a resident there.
Lifetime Allowance and other pensions tax changes
Probably the biggest surprise of the UK’s 2023 Spring Budget was the abolition of the pensions Lifetime Allowance and resulting tax charges.
While the Lifetime Allowance itself remains in place for now, the tax rate for anyone breaching the limit is 0% from 6 April 2023 onwards. It will be scrapped entirely in the 2024 Finance Bill.
First introduced in 2006, your Lifetime Allowance is the amount you can hold in combined UK pension benefits (excluding state pensions) before incurring additional tax charges – 55% for lump sums or 25% for income or overseas transfers. It has been cut significantly over recent years, from £1,800,000 in 2011 down to £1,073,100.
Abolishing this extra tax was welcome news for those who have built up larger pension savings over decades of contributions and growth.
A future government could, however, reverse this move and the Labour Party quickly pledged to do so. The next general election must be held no later than January 2025. Bearing in mind that pension transfers can take up to six months, there may be a limited opportunity to transfer your pension out of the UK and avoid any future UK charges.
Other pension changes effective from 6 April 2023 include an increase to the Money Purchase Annual Allowance and minimum Tapered Annual Allowance from £4,000 to £10,000. The Annual Allowance for pension contributions also increased from £40,000 to £60,000.
UK income tax
The Spring Budget did not include any significant changes to income tax, but the Autumn Statement included measures to increase taxation.
The income tax personal allowance, higher rate threshold, national insurance contributions, upper earning limit and upper profits limit, which were already frozen at their 2021 levels until 2026, will continue for a further two years, until April 2028.
The income threshold for the additional 45% tax rate (47% in Scotland) has been reduced from £150,000 to £125,140 with effect from 6 April 2023.
As previously confirmed, from the start of this new tax year corporation tax increased to 25% for businesses making over £250,000 in profits.
Capital gains and dividends taxation
As announced in the Autumn Statement, the Capital Gains Tax Annual Exempt amount has dropped from £12,300 to £6,000 for the 2023-2024 tax year. It will be cut in half again, to £3,000, in April 2024.
The Dividend Allowance has also been halved, from £2,000 to £1000 from April 2023, and then to £500 in 2024.
UK inheritance tax
Both the general Nil Rate Band and Residential Nil Rate Band will remain frozen at £325,000 and £175,000 respectively until April 2028. Coupled with rising house prices, this will drag more and more families into the IHT net unless you take action. The general nil rate band has actually been frozen since 2009, which has impacted many families.
You can find out more details by reading our UK spring budget article.
In comparison – the Cyprus tax benefits
If you are undecided about whether to become a tax resident in Cyprus, this may help you make up your mind.
Income taxes – The income tax threshold in Cyprus is €19,500. Tax rates then range from 20% to 35%. You can opt to have your foreign pension income taxed at 5% (with a €3,420 allowance). A pension commencement lump sum from a UK pension can be taken free of tax in both Cyprus and UK. Interest and dividends are subject to Cyprus ‘defence contributions’ instead of income tax (rental income is subject to both) – but non-Cyprus domiciles are exempt. Most UK expatriates, therefore, escape tax on interest and dividends for their first 17 years of residence.
Capital gains tax – Residents of Cyprus are only liable to local capital gains tax on gains arising on the sale of Cyprus real estate – property in the UK or elsewhere is exempt. And when it comes to your capital investments, gains made on the sale of shares are generally not taxed in Cyprus. In fact, living in Cyprus is the perfect opportunity to dispose of UK assets, including company shareholdings if you are selling a business, as the gains will be tax-free there.
Inheritance tax – There is no inheritance or succession tax in Cyprus.
Take personalised, cross-border advice to establish if and how the UK tax changes could impact you and your family, and how to take full advantage of Cyprus’ welcoming tax regime. 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. Our Paphos office has been established for 20 years and our advisers there are long-term residents. With offices in both the UK and Cyprus and teams of tax and pensions specialists, we offer genuine cross-border expertise. We can help you plan and time your move to the island, or, if you already live there, review your wealth management to help make sure you are benefiting from Cyprus’ advantageous tax regime.
Contact us to learn more about the tax advantages of living in Cyprus.