Sun, sea and UK tax breaks in Cyprus?!
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 a potentially favourable tax regime – who wouldn’t want the Cypriot retirement dream?
Although Cyprus is in the E.U. and the Eurozone, it could be 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 worldwide 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 meaningful so 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).
Handy facts!
- You can claim back your UK tax for the last four years, so if you have 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%
- 28,001-36,300 pay 25%
- 36,301-60,000 30%
- Over 60,000 35%
What other financial positives are there about being an expat in Cyprus?
Other income
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 have even move investments offshore and avoid the British tax entirely.
Capital gains
Capital gains on qualified funds and securities are not taxed in Cyprus.
Dividend income
Dividend income is tax exempt, but you do still pay the 17% 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% UK Inheritance tax charges on your Cypriot property. This could make an enormous difference to the value of the estate you leave your family.
In Cyprus you are not liable to pay Inheritance tax on worldwide wealth and you can be domiciled in Cyprus and still own property in the UK. Whilst any UK property would not be subject to estate duty in Cyprus it would be liable to UK inheritance tax if it was worth more than the £325,000 threshold.
Individual Savings Accounts (ISA) tax treatment in Cyprus
In Britain, the advantage to these savings schemes is that they are tax free. Unfortunately, they are currently all considered for tax purposes in Cyprus and each case is looked at individually.
