Sun, sea and tax breaks?! Why Cyprus is popular with British expats
Are you planning to enjoy your retirement in Cyprus? Have you already escaped British weather and are living there now? Sun-soaked, superb quality of life and sole taxing rights treaty – who wouldn’t want the Cypriot retirement dream?
Although Cyprus is in the E.U. and the Eurozone, it is one of the best tax systems in Europe for the British expatriate. Spend 183 consecutive days in Cyprus and you are counted as a ‘tax resident’. This means that you must pay tax on your world wide income but a tax treaty between Britain and Cyprus means that you should never pay tax on the same thing in both countries.
This means you can stop paying UK tax on your UK pension income and start paying tax on it in Cyprus. The difference in percentage terms is huge – read on…
Avoid UK income tax on your pension Income
On your UK pension income, you can choose to follow the income tax scale below or pay 5% on the entire amount (If it is currently over 3,420 euros).
- You can claim back your UK for the last four years, so if you having been living in Cyprus for more than one tax year it’s worth considering claiming back for as many years as you can
- You can claim the tax you have paid on both private and government pensions. With many expats receiving a government pension for example from the MOD this is important to remember
What are the income tax rates in Cyprus?
What rate of income tax will I pay in Cyprus?
The usual Cypriot income tax scale, in Euros, is:
- 0-19,500 pay 0%
- 19,501-28,000 pay 20%
- 28,001-36,000 pay 25%
- 36,001 and over pay 30%
What other financial positives are there about being an expat in Cyprus?
All worldwide income is taxable in Cyprus, so offshore savings and investments must be declared. BUT if you have property rental or other income in the UK on which you have paid UK tax then, thanks to the Cyprus-Britain treaty, it will not be taxed again by the Cypriot government. You could even move investments offshore and avoid the British tax entirely!
Capital gains on qualified funds and securities are not taxed in Cyprus.
Dividend income is tax exempt, but you do still pay the 20% Defence Contribution on that money.
Avoid 40% UK Inheritance Tax
If you are staying in Cyprus forever then it may be worth becoming ‘domiciled’ there. This means that your family could avoid the massive 40% Inheritance tax charges on your UK assets. You are not liable to pay Inheritance tax on worldwide wealth and you can by domiciled in Cyprus and still own property in the UK. This could make an enormous difference to the value of the estate you leave your family. For example, there is a personal allowance of £325,000 which can be left before the 40% levy is applied. For example, imagine a couple, who are domiciled in Cyprus, leave £800,000 in UK property to their children. Between them they have personal allowances of £650,000. The Inheritance Tax of 40% would only be applied to the difference between the two amounts – £800,000 – £650,000 = £150,000. So the loss to the family in tax is about £40,000 in this instance. If the couple had remained in the UK the family would lose out on 40% of the whole £800,000. A substantial difference!
ISAs and PEPs.
In Britain, the advantage to these savings schemes is that they are tax free. Unfortunately they are all considered for tax purposes in Cyprus and each case is looked at individually.
How we can help you
If your just moving to Cyprus or you’ve been there for a few years we can help you reduce the amount of tax you pay in the UK legitimately.
We can reclaim what you have missed out on for the last four tax years and complete any tax returns that are needed on your behalf.
The UK tax system is complex and each person’s tax affairs are individual to them. We invite you to get in touch to let our experts review your UK tax position.
Call us today on +44 (0)1228 520477
Email us at firstname.lastname@example.org