The UK tax authority HM Revenue & Customs issued another warning against hiding assets offshore, and this includes overseas property. Many British residents own property in count
The UK tax authority HM Revenue & Customs issued another warning against hiding assets offshore, and this includes overseas property. Many British residents own property in countries like Cyprus, but not all of them fulfil their tax obligations in the UK and/or here in Cyprus. Both countries are now taking a closer look at property ownership to ensure they receive all tax due.
If you own property in Cyprus but are a UK resident, you need to comply with both the UK and Cyprus regulations.
As a UK taxpayer, you need to declare the rent on your annual UK tax return. Any gains on sale need to be declared and taxed in the UK. Overseas property must also be declared as part of your estate for UK inheritance tax purposes if you are UK domiciled.
Here in Cyprus, rental income is taxable at the scale rates of income tax. Residents also pay 3% defence contribution on 75% of gross receipts, but this does not apply to non-residents.
If and when you sell the property you will pay tax on the capital gain, currently at a flat rate of 20%. There is a personal allowance ?17,086 per person.
Land transfer fees are also charged by the Department of Land and Surveys on the transfer of immoveable property at rates of between 3% and 8% depending on the value of the property.
You will also need to pay a local property tax each year, currently at rates of between 0% and 0.4%.
When it comes to income and capital gains tax, Cyprus and the UK apply their own rules to calculate the tax due in each case, so the taxable amount will be different in each country.
In the case of rental income and capital gains tax you can offset the Cyprus tax paid against the UK liability to avoid double taxation. If the UK tax is higher, further tax will be due in the UK. If the UK tax is lower, you do not get a refund for the difference.
The land transfer fees and local property taxes are due only in Cyprus; while for inheritance tax purposes the property will only be assessed in the UK (there is no inheritance tax in Cyprus).
It can be hard enough getting tax planning right in one country; getting it right when it involves two countries is even more complicated. You should seek professional advice from a firm like Blevins Franks which specialises in both Cyprus and UK taxation and how the two interact.
Chief Secretary to the UK Treasury, Danny Alexander, warned that the government is going after tax dodgers to make sure they pay their fair share. This includes those hiding assets offshore. It is targeting wealthy Britons who own property abroad as it has concerns that owners are failing to declare millions of pounds of rent.
Its team of tax investigators is looking through tax return records across different databases and public records, comparing them all and looking for ?oddities?.
For example, HM Revenue & Customs recently launched a successful case against a UK taxpayer who owned and rented out over 10 properties abroad but had not declared any income. The case involved over ?100,000 of unpaid tax.
People who only own one overseas property could also be targeted, though HRMC is particularly focusing on those who own a few houses.
HMRC had announced that it was targeting wealthy individuals who own property abroad last autumn. It applies sophisticated data mining techniques to public information to identify people own property abroad, and uses risk assessment tools to compare the information to that supplied on tax returns.
This highlights people who do not appear to be correctly declaring the income and gains, and those who do not have the means to purchase the property.
HMRC can use the internet to spot ?anomalies?, ?lifestyle indicators? and ?unexplained inconsistencies? ? any discrepancy between information provided on tax returns and reality.
Much of this work is being done by HMRC?s Affluent Unit. Its remit has been expanded to cover people with assets over ?1 million – previously the threshold was ?2.5 million. It is also hiring 100 additional staff.
For advice on Cyprus and UK tax law, and effective tax planning in both countries, speak to experienced tax and wealth management firm. Blevins Franks is highly experienced at advising British expatriates in Cyprus and helping them legitimately lower their tax liabilities.
19th November 2012
The 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; an individual should take personalised advice.