Due to upcoming budgetary measures from the UK government, which are likely to result in heavy tax increases in a reasonably short period of time, many who are British nationals, including but not limited to business owners, retirees and high net worth individuals consider moving abroad to places where the amount of tax paid is lesser, and therefore more favourable. Raising tax burden in the UK, residents looking to lower their tax expenditures will be welcome to Cyprus with its low corporate tax rate, beneficial Non-Dom status and overall interest regimes.
In this paper, we will highlight the advantages one would obtain from moving to Cyprus, explain how the tax changes specifically in the UK compare to Cyprus’s more competitive polices, and demonstrate the proportional amount of taxes one may potentially save after relocating to the foreign country.
The UK’s Increasing Tax Burden
The UK budget introduces significant tax changes across several categories, which will heavily impact both individuals and businesses:
- Inheritance Tax (IHT): Currently set at 40% for estates valued above £325,000, IHT could see reduced exemptions, meaning more estates will be affected.
- Capital Gains Tax (CGT): United Kingdom CGT rates applicable now range from 10 – 28 % but could go up to 45 % especially for higher earners, bringing additional stress for those offloading assets.
- Pension Tax: UK pension tax relief could face reforms, with a possible flat rate of 30% instead of the current higher relief for high-income earners
- Employer National Insurance Contributions (NICs): Employers can expect higher costs when recruiting as it appears that employer NIC’s will increase in the future.
- Dividend and Income Taxes: High dividend tax rates currently stand at around 39.35% and there are predictions that some taxpayers may be thrust into high-income tax brackets owing to further reductions in income tax thresholds.
These proposed changes would lead to an increased taxation burden on the people in the UK, hence moving to Cyprus would aid those wanting to escape the increase in taxation costs in the UK.
Why Cyprus is the Ideal Tax Haven
Cyprus comes with a number of tax benefits that make it easier to do business for UK citizens. The UK’s increasing tax rates discourage UK based businesses and individuals and Cyprus offers a perfect solution. Key benefits include:
- Low Corporate Tax Rate: Cyprus has one of the lowest corporate tax rates in Europe, at 12.5%, which is significantly lower than the UK’s 25%. Businesses relocating to Cyprus can benefit from substantial tax savings.
If you want to Learn more, click hear corporate tax benefits in Cyprus.
- Non-Domicile Status (Non-Dom): Dividends and interests received by Non-Dom residents are subject only to a 2.65% contribution to the General Healthcare System (GHS), with an annual cap of €4,770. This makes Cyprus an ideal destination for high-net-worth individuals, investors, and retirees.
Discover the full benefits of Non-Dom status and how to obtain it here.
- No Inheritance Tax: Cyprus does not have inheritance tax in contrast to the UK which allows the country to be a suitable place for estate planning.
- 0% Capital Gains Tax (CGT): In Cyprus, there is no capital gains tax on the sale of securities such as shares and bonds. This provides a substantial benefit to investors, particularly in contrast to the UK’s expected CGT increases.
For further details, see our comprehensive guide on Cyprus taxes.
Tax Residency in Cyprus: The 60-Day Rule and 183-Day Rule
In order to benefit from the Cyprus tax regime, an individual must first be a Cyprus tax resident. Cyprus offers two primary pathways for tax residency:
- 60-Day Rule: An individual is allowed to become a tax resident of Cyprus by living in the country for a period of at 60 days in each year and provided he/she:
- Is not tax residents in any other jurisdiction;
- Owns property in Cyprus or rents property in Cyprus;
- Conducts business or are employed in Cyprus; and
- Does not reside in any other country for more than 183 days each year.
This is ideal for investors who do not expect to stay in Cyprus for a long period of time but would like to reap the tax benefits
- 183-Day Rule: On the other hand, individuals can also obtain tax residency if they spend more than one hundred and eighty-three days in Cyprus in a given calendar year. This is the usually applied form of tax residency, the ‘183-day rule’, and is uncomplicated and the most common.
Both options allow access to the Non-Dom regime, making Cyprus one of the most flexible and favourable tax destinations in Europe.
For further details on the 60-day rule and the 183-day rule, visit our guide on Cyprus Tax Residency for Individuals and Non-Domiciled Status.
Residency Permits in Cyprus: Temporary and Permanent Residency
Besides tax residence in Cyprus, a residency permit, either temporary or permanent is also easily acquired in the following ways:
- Pink Slip Temporary Residence Permit: This permit is suitable for individuals who want to live in Cyprus on a short, medium or long-term basis. The permit is valid for one year at a time (renewable every year) and does not allow the holder to be engaged in any employment in Cyprus.
Learn more about the Pink Slip Temporary Residence Permit.
- Permanent Residence by Investment Program: Cyprus also offers a fast-track route to permanent residency through its investment program, which requires a minimum investment in real estate or other qualifying sectors.
More details about this program can be found here.
Comparative Tax Analysis: UK vs. Cyprus
This table compares the present and future tax rates in the UK with the tax rates in Cyprus. This table illustrates the enormous tax benefits that relocating to Cyprus could provide to UK citizens.
Tax Category | Current UK Tax Rates | Expected UK Tax Rates (Post-Budget) | Cyprus Tax Rates |
Corporate Tax | 25% | No change expected | 12.5% |
Capital Gains Tax (CGT) | 10%-28% (depending on asset and income level) | Up to 45% for higher earners on certain assets | 0% on the sale of securities |
Inheritance Tax (IHT) | 40% above £325,000 | Possible reduction in exemptions, keeping the 40% rate | 0% |
Dividend Tax | 8.75%-39.35% | No change expected | 2.65% GHS contribution for Non-Dom residents (max €4,770 annually) |
Income Tax | 20%-45% (basic to higher rate) | No change to income tax rates, but lower thresholds may apply | First €19,500 tax-free, then 20%-35% depending on income level |
Pension Tax | Taxed as income, 20%-45% depending on income | No major changes expected | 5% on pensions above €3,420 annually, with the option for individuals to choose the standard income tax rates |
Examples: How Much Tax Can You Save by Relocating to Cyprus?
Let’s view as case studies, how relocating to Cyprus can become a reality in terms of cutdowns in the end:
Example 1: A Business Owner
- UK: A UK-based business owner with an annual net profit of £1 million would be taxed at 25%, paying £250,000 in corporate tax.
- Cyprus: In Cyprus, the corporate tax rate is only 12.5%, meaning the same business would pay just €125,000. This represents a €125,000 annual saving in corporate tax alone. Read more about company formation in Cyprus here.
Example 2: A High-Income Individual with Dividends
- UK: An individual earning £300,000 annually, including dividends, could face taxes of up to 39.35% on dividend income. This results in a tax bill of £118,050 just on dividends.
- Cyprus: If the individual qualifies for Non-Dom status, they would pay only 2.65% as a GHS contribution on dividends, with an annual cap of €4,770. Therefore, on £300,000 of dividend income, the individual would pay just €4,770, potentially saving over £113,000 annually compared to the UK.
Example 3: An Investor with Significant Capital Gains
- UK: A UK investor who makes a £500,000 capital gain would be taxed at 20%, paying £100,000 in CGT.
- Cyprus: In Cyprus, there is no CGT on the sale of securities, meaning the same investor would pay £0—saving £100,000.
How to Move to Cyprus: Legal Support for a Worry-Free Move
Relocating to Cyprus is easy if handled by qualified and experienced lawyers. At Polycarpos Philippou & Associates LLC, we specialize in assisting clients with (a) obtaining temporary or permanent residence permits, (b) buying or renting property in Cyprus, (c) registering as a Cyprus tax resident and obtaining non-dom status, (d) tax structuring and (e) establishing and managing Cyprus companies. Our legal team ensures that your relocation is handled efficiently, allowing you to take full advantage of Cyprus’ tax benefits while complying with all local laws.
Whether you are looking to relocate for personal or business reasons, our team will guide you through every step, from residency permits to tax planning.
Conclusion:
As the UK moves toward increased taxes on capital gains, inheritance, and business profits, Cyprus offers a legal, tax-efficient alternative. With no inheritance tax, a 12.5% corporate tax, 0% capital gains tax, and the Non-Dom regime, Cyprus provides a highly attractive solution for individuals and businesses looking to minimize their tax exposure.
If Cyprus is your new relocation destination, step forward and contact Polycarpos Philippou & Associates LLC in today’s time. Our experts in legal services will assist you through the procedures and help you in making the best of the tax structures in Cyprus.