UK inheritance tax for British expats in Cyprus

Many British expatriates living in Cyprus assume that relocating automatically removes them from UK inheritance tax. It does not. UK inheritance tax is determined under UK law, and according to HMRC guidance, it continues to apply based on long-term UK residence and the location of assets, not simply where you now live. For anyone with UK connections, cross-border estate planning is essential.

Does living in Cyprus remove UK inheritance tax?

No. While Cyprus does not impose inheritance tax, UK inheritance tax is governed by UK legislation, not by where you reside.

From 6 April 2025, the UK replaced its domicile-based system with a long-term residence framework. Under this framework:

• Individuals may remain within UK inheritance tax scope for a period after leaving the UK
• UK assets remain taxable regardless of residence
• Non-UK assets may still be taxable depending on residence history

This change affects every British national who has relocated abroad, including those who have moved to Cyprus.

The long-term UK residence test

From 6 April 2025, an individual is treated as a "long-term UK resident" if they have been UK tax resident for at least 10 of the previous 20 tax years. Long-term UK residents are subject to UK inheritance tax on their worldwide assets, including assets held in Cyprus.

There is a tail period after leaving the UK during which the long-term residence rules continue to apply. The length of this tail period depends on how long the individual was UK tax resident. For someone who was resident in the UK for 20 years, the tail period is 10 years.

This means that a British national who moved to Cyprus after decades in the UK may remain within the UK inheritance tax regime for a decade or more after departure.

How UK inheritance tax applies to your assets

HMRC applies inheritance tax based on a combination of factors:

• UK tax residence history
• Length of UK residence over time
• Location of assets, particularly UK property

UK assets (property, investments, cash held in UK accounts) remain within the UK inheritance tax regime regardless of your residence status. There is no exemption for non-residents holding UK property.

Non-UK assets (including Cyprus property and investments) are taxable if you meet the long-term residence criteria described above.

The standard rate of UK inheritance tax is 40%, applied to the value of the estate above the nil-rate band (currently £325,000). A residence nil-rate band of up to £175,000 also applies where a family home passes to direct descendants.

Lifetime gifts and the 7-year rule

Many individuals try to reduce inheritance tax through lifetime gifting. However, gifts do not automatically fall outside the UK inheritance tax regime.

• Gifts may remain taxable if death occurs within 7 years of the transfer
• The "gift with reservation of benefit" rules apply where the donor retains any benefit from the gifted asset, for example, continuing to live in a property that has been transferred
• Taper relief reduces the tax on gifts made between 3 and 7 years before death, but tax may still apply

Gifting must be properly structured and documented to be effective. This is particularly important for British expatriates whose estates span both the UK and Cyprus.

Why Cyprus alone is not a complete solution

Cyprus offers significant estate planning advantages:

• No inheritance tax
• No gift tax
• An efficient succession framework under Cyprus succession law

However, Cyprus law does not override UK tax legislation. Estates with UK connections must be planned across both jurisdictions at the same time. A will valid in Cyprus that efficiently distributes Cyprus assets does not address ongoing UK inheritance tax exposure on UK assets or worldwide assets for long-term UK residents.

Key risks for UK expatriates in Cyprus

The most common situations where unnecessary inheritance tax exposure arises are:

• Retaining UK property without reviewing the inheritance tax position
• Assuming that becoming a Cyprus tax resident eliminates UK tax exposure
• Having a Cyprus will but no coordinated UK will
• Making informal gifts without professional advice on the 7-year rule
• Not accounting for the long-term residence tail period when planning the timing of asset transfers

Each of these can result in a significant and avoidable tax liability.

How to protect your estate

Effective estate planning for British expatriates in Cyprus requires a review of both jurisdictions. The key areas to address are:

• Assessing whether the long-term residence rules apply and for how long
• Reviewing the inheritance tax position of all UK assets
• Coordinating UK and Cyprus wills so that both estates are covered
• Structuring lifetime transfers in a way that is consistent with the 7-year rule
• Considering whether trusts or other planning vehicles are appropriate for your circumstances

Our wills and estate planning team advises British expatriates in Cyprus on all of these areas, working alongside UK tax advisers where needed to ensure that both jurisdictions are addressed.

If you hold UK assets or have a lengthy UK tax history, a review of your inheritance tax position is the most important estate planning step you can take. In many cases, early planning significantly reduces the tax exposure and gives your family much greater certainty.

Contact us to arrange a consultation with a member of our estate planning team.