Tax Changes for UK Residents with Cyprus Property

 

In Cyprus there is No Estate Duty or Inheritance Tax on Death.  But if you are an owner of property in Cyprus who is resident in the UK, or even if not a resident deemed to be domiciled in the UK, then UK Inheritance Tax has to be paid to the HMRC.

In the UK, inheritance tax is charged at 40% on assets worth more than £300,000 that someone leaves behind when they die, unless it is left to a spouse. But when the spouse died the same £300,000 rate applied. There were already ways of mitigating this in Wills that created “nil-rate band discretionary trusts” which already allowed married couples to use both allowances.
 
The UK Government announcement on 9 October 2007 has simply made the individual inheritance tax threshold transferable – allowing couples to combine their allowances and so escape tax on the first £600,000 of an estate.  If the husband dies first, the house would normally pass to his widow free of inheritance tax but when she dies, unless they had made careful plans, the estate would have been liable to IHT. With the new rules, the widow’s inheritance tax allowance will be added to her husband’s so that, if the value of the house is less than their combined allowances of £600,000, there will be no inheritance tax to pay. The measure will be backdated “indefinitely” – and it will increase to £700,000 by 2010.

This is only giving to most people what they already had through “nil-rate band discretionary trusts”.

Currently, Capital Gains Tax on the sale of a property owned by a UK Resident anywhere in the world (or anyone deemed to be domiciled in the UK) was due at 40%.  If you paid CGT in that country, and that country had a double taxation relief treaty with the UK, then the CGT already paid could be set off against the whole 40% due in the UK.

So if you paid CGT in Cyprus at 20%, after the personal allowance of CYP10,000 per joint owner, then you would only pay an additional 20% in the UK.

The UK Government announcement on 9 October 2007 means that from April 6, 2008 CGT in the UK will be 18%.  So you should not pay more than 20% from that date !!

Because of this UK Sellers of homes in Cyprus might now delay putting properties on the market or delay completions until after 6 April 2008.

But watch out because the expense and personal allowances which can be deducted before the calculation of tax in both countries are different and the taxable amounts are different because the calculations are different.  Contact me if you or your advisor needs more information or do a search on this site – the information on allowances and deductables in the UK and Cyprus is already here.

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