Reduce CGT in Cyprus (2)
| Quote: |
| My lawyer came up with this idea in 2005. |
So to legitimately avoid 10% Cyprus CGT then you could purchase your property in Cyprus using a Limited Company registered in Cyprus.
Setting up a company in Cyprus through your lawyer in Cyprus will cost about CYP1500 but it can be very tax efficient from a CGT and company tax point of view.
If you are a multiple investor then the savings could be significant.
Cypriot companies attract a corporation income tax rate of 10% on rental income and a Capital Gains Tax of 10% also if you were to sell the property as opposed to the shares in your limited company which attracts 20%.
[Capital Gains Tax (CGT) is imposed at the rate of 20% on gains from the disposal of immovable property situated in Cyprus including gains from the disposal of shares in companies which own immovable property in Cyprus and not listed in any recognised Stock Exchange.]
Unlike personal taxation,you will not have any additional tax to pay in the UK unless you draw the income or capital gain from the Cypriot company.
If you retire to Cyprus you can draw the money at personal Cypriot rates of tax and if you are an investor you can reinvest the profits into further real estate with no additional UK tax due.
But there are no pension tax reliefs that can be obtained now. The purchase of 100% of shares in a Company that holds residential property is also prohibited by your personal pension fund.
The Chancellor’s U-Turn by IFA Firm Punter Southall
On 5 December, in his Pre-Budget Report, Gordon Brown indicated that residential property and ‘exotic’ investments
(such as fine wines etc) would not now be allowed as investments in pension schemes. Although HM Revenue and
Customs’ Technical Note uses the term ‘prohibited’ about these investments, they will not technically be prohibited, but will be tax prohibitive. It is not just a question of these types of investment being cost neutral whether made personally or
within one’s pension scheme. The potential tax charges of putting exotic investments in a SIPP could be astronomical!
If a member does invest in this type of asset, the consequences may be as follows:
• The member will be subject to an income tax charge at 40% on the value of the prohibited asset;
• The scheme administrator will become liable to the scheme sanction charge, which will usually be a net amount of 15% of the value of the prohibited asset;
• If set limits are exceeded by the investment, the cost of the asset may also be subject to the unauthorised payments
surcharge which is a further charge on the scheme member of 15% of the value of the asset;
• If the value of the prohibited asset exceeds 25% of the value of the pension scheme’s assets, the scheme may
be de-registered which would lead to a tax charge on the scheme administrator on the value of the scheme assets at the rate of 40%.
Some types of prohibited assets will receive transitional protection from the new rules, although this is likely to be
conditional on not improving or developing the assets.Where members have bought ‘off plan’ (i.e. already paid a deposit for a property that is not yet built), the investment will only be protected if it would be permitted under current rules.
However, it is more than likely that these will be in residential developments and so not allowable under current tax rules.
The purchase of 100% of shares in a Company that holds residential property is also prohibited.
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