The Cypriot tax regime offers varied potential benefits for UK nationals and tax residents, but the specifics of your tax obligations and declaration requirements will depend on several factors, such as whether you retain assets in the UK and the type of visa or residence permit you relocate under.
As with every international move, assessing your tax position and examining the options to restructure, transfer or retain income sources and investments is important to ensure you take advantage of all the available exemptions and allowances.
For example, British expats retiring to Cyprus long-term can opt to either pay a flat rate of 5% income tax against their foreign-source pension income over an exempt allowance of €3,420 or pay tax based on the normal income tax brackets – which could make a sizeable difference to your annual tax burden.
Clarifying Your Tax Residency Status When Moving to Cyprus From the UK
One of the first considerations is whether or not you are likely to be categorised as a tax resident, which requires careful analysis where there are potential ambiguities to ensure that, as a UK national, you declare and pay taxes in the proper jurisdiction.
Tax residency for third-country nationals moving from non-EU countries is determined based on factors such as:
- How many days per year you spend in Cyprus and the UK.
- The origin of your income or employment earnings from inside or outside the European Union.
- Where your family members and primary permanent residence are based.
British expats who are tax residents in Cyprus are liable for tax on their worldwide income, but interest and dividend income are taxed differently and separately from other earnings such as business income or a salary from employment. Instead, these earnings are taxed as defence contributions.
The advantage from an expat perspective is that non-Cypriot domiciles are exempt, with a domicile normally considered anybody born in Cyprus or who has lived there for at least 17 of the past 20 years.
Therefore, many British citizens enjoying Cyprus life do not pay any tax on dividends or interest earnings for the first 17 years, regardless of whether they have a permanent residence permit. Still, caution is necessary since, if British expats intend at some point to claim a UK non-domiciliary status as part of inheritance tax planning, this could affect their ability to claim exemption as a non-domicile in Cyprus.
Taxation on Income for British Nationals Living in Cyprus
Cypriot personal income tax, or PIT, is charged against all income for residents outside of earnings taxed as defence contributions, as above. Non-tax residents are subject to tax only on income from Cyprus, such as through employment in the local job market. Tax bands are as follows:
| Income | Tax Rate |
| Up to €19,500 | 0% |
| €19,501 – €28,000 | 20% |
| €28,001 – €36,300 | 25% |
| €36,301 – €60,000 | 30% |
| Over €60,000 | 35% |
The obvious benefit for UK citizens who are higher-rate earners is that the upper tax bracket in Cyprus is 10% lower than in Britain, and personal allowances are greater – although the direct comparison between tax savings is less substantial for mid-level earners.
As we’ve mentioned, pension income can work in two ways, where expats receiving revenue from overseas either remit tax on the brackets above or pay a flat 5% income tax rate for pension income above €3,420.
Depending on your circumstances, most UK nationals classified as Cypriot tax residents are only subject to tax against pension earnings in Cyprus and can considerably reduce their tax burden. However, some pensions are excluded, primarily those related to UK government pension funds which are taxable in the country of origin.
Defence contributions, levied against income from interest and dividends, only apply to Cypriot domiciles and are charged at 17% against dividends and 30% against interest earnings. However, interest from Cypriot government bonds is reduced to 3%.
Foreign nationals who own a rental property pay both personal income tax and defence contributions on their rental profits.
Inheritance and Capital Gains Taxes for Cypriot Residents
Perhaps the most distinct tax advantage of living in Cyprus is the lack of inheritance tax – there are no succession taxes of any kind. Tax residents registered with Cyprus immigration and with a valid Cypriot residence permit can transfer assets to spouses, family members and relatives, including ‘third-degree’ relatives such as cousins and great-grandchildren, with no capital gains tax.
Other capital gains are taxable at 20%, but only gains originating within Cyprus. Sales of property overseas, including in the UK, are exempt, and profits made on share disposals are often exempt, except for company shares linked to a business that owns property within Cyprus.
However, the caveat is that most British nationals will remain subject to UK inheritance tax unless registered as an overseas domicile. As we have explained, choosing to establish domiciliary status in Cyprus will affect your eligibility to claim exemption from defence contributions.
According to UK inheritance tax law, any domicile, regardless of how long they have lived abroad, will normally be liable for inheritance tax. UK-based assets are almost always taxable irrespective of whether you have since become domiciled abroad.
Another pitfall is that, although zero inheritance tax may seem very appealing, the Cyprus government does impose succession laws with forced heirship statutes common within the European Union that can mean your estate is divided between any direct relatives against pre-set proportions, even if your will states a different wish.
We always advise expats to seek professional advice around structuring their estate, determining the likely future inheritance tax liability, and making informed decisions about the pros and cons of changing their residence status and country of domicile to Cyprus from the UK or applying for full Cyprus citizenship.
Visa Routes for UK Nationals Relocating to Cyprus
A final tax implication to bear in mind is that you may find that your visa route and whether you plan to apply for an EU passport affects your tax position as a UK citizen living in Cyprus.
Cyprus immigration rules and the impacts on your tax status vary considerably, where a Cyprus work visa or student visa is treated differently from applicants moving to Cyprus through the residency by investment scheme.
Moving to Cyprus From the UK as an Investor
The recently revised Residency by Investment Program allows foreign nationals to obtain permanent residency by investing in a Cypriot property worth at least €300,000, plus VAT. Applicants must also have an annual income of at least €50,000 plus €15,000 for a spouse and €10,000 for each dependent child or family member included on the application.
In terms of tax residency, as a permanent residence permit holder and assuming you choose to live in the property and do not leave Cyprus, you will usually become a tax resident, which may affect your taxes in the year of your relocation, where timings can be important.
Additionally, as tax residents, expats become eligible to access the General Healthcare System but must have private health insurance initially, and the income used to meet the eligibility criteria for a permanent residence permit must be entirely from an overseas country.
There are positive and negative impacts, where becoming a Cypriot tax resident but maintaining an annual income from abroad into a Cypriot bank account could create a contrasting position.
Technically you have permanent residency status, but it is necessary to claim appropriate tax credits through double taxation agreement provisions where income remains declarable in two countries.
Living in Cyprus With a Temporary Residence Permit
Post-Brexit, UK nationals must meet visa requirements before moving to Cyprus since Britain is now one of the non-EU countries where any stays over 90 days require a temporary residence permit.
Aside from family reunion visas, these types of renewable residency documents act as entry visas and normally have a finite expiry. However, it is possible to apply for a residence permit as a student, secure a work visa to take up a post in the job market or request visitor visas offered to citizens from outside the European Free Trade Association area.
The complication is that, unlike a permanent residence permit secured through investment, you could potentially be considered a tax resident based on how long you remain in Cyprus but are not treated as an EU citizen.
Foreign nationals who do not leave Cyprus, and remain with a lawful Cyprus visa, can apply for permanent residency after several years but, in the meantime, could be taxed as non-residents or tax-residents, depending on the terms of their temporary visa.
Applying to the Cyprus Migration Department as a Pre-Brexit Resident
Residents may be entitled to apply for a MUKW residence document, either because they have been living in Cyprus since before December 2020 or have five years of residence against a valid work visa or another temporary residence permit.
Applicants must provide a bank statement to evidence their income and details of a local bank account, verify whether they have international private medical cover and will not be reliant on the General Healthcare System and submit copies of other relevant paperwork such as an employment contract linked to a work visa, and a copy of a valid passport.
Moving to Cyprus from the UK is certainly possible, but you may find that this route requires further examination to determine whether a temporary visa also constitutes tax residency, if you remain liable for British taxation against your UK State Pension and other income, and whether you are likely to qualify for beneficial tax treatments.
Further details about the difference between permanent residency and tax residency and how this is determined are available through our more detailed Guide to Taxes in Cyprus and Cyprus Residency Guide, both of which are free Chase Buchanan Wealth Management downloadable resources.
*Information correct as of June 2023