Inheritance
Whilst there is no IHT in Cyprus, Wills are essential.
Please be aware that the Cyprus law on inheritance is different to that of the UK. It is absolutely essential that you have a will covering all your assets in Cyprus.
It is essential that both solicitors know about the existence of other wills, and that all wills refer to the other wills.
If you die intestate, then your estate will be disposed of in accordance with the laws of Cyprus.
Good advice is to always appoint a relative or a friend as an Executor. They can then always employ a solicitor to act for them ‘when the time comes’.
Firstly domicile needs to be decided. Domicile is very different to residence and is difficult to change. You acquire a domicile of birth, which is the country of your birth. But it can be changed to a Domicile of Choice. To do this, you need to set up home in the country of Domicile of Choice and sever ALL links with the country of Domicile of Birth and have no intention of ever returning (even after death) to ‘reside’ in the Domicile of Birth.
There are two elements to an estate. The IMMOVABLE estate – which is land and property. The MOVEABLE estate – which is anything else – cash, bank accounts, cars, household goods, jewellery etc.
INTESTACY – Dying without a Will that has been written anywhere in the World.
1) UK domiciled – your immovable estate is distributed by Cypriot laws of intestacy which are as per the Statutory Portion which is described under wills section 2b (see later) and your moveable estate is distributed by the intestacy laws of the UK. Your estate is still liable to pay UK inheritance tax – even though you may reside in Cyprus.
2) Cyprus domiciled – both your immovable estate and your moveable estate are distributed by the Cypriot laws of intestacy which are as per the Statutory Portion which is described under wills section 2b (see later). Your estate is liable to pay Cypriot inheritance tax, and the good news is that it has now been abolished.
TESTATE – Dying with at least one Will that has been written somewhere in the World.
1) If your father was born in the UK or in a Commonwealth country, you have freedom to dispose of your whole estate (both moveable and immoveable) by the Will(s).
2) If your father was not born in the UK or in a Commonwealth country, boy to things get difficult:
The estate is divided into 2 sections:
a) Disposable Portion – which can be distributed by the Will
This is 25% of the whole estate (both moveable and immoveable) if the deceased left a spouse and a child (or grandchildren)
This is 50% of the whole estate if the deceased left a spouse but no children or grandchildren but left at least one parent
And is 100% of the whole estate if the deceased didn’t leave a spouse, children, grandchildren or parent
b) Statutory Portion – which is distributed to defined relatives according to Cypriot Law.
The distribution of this can be quit complex and I will only go through some of the possibilities:
(i) Deceased left a surviving spouse and children (or grandchildren)
Spouse takes equal share with the children, if one of the children has died before, leaving children, then their children take their parents share.
(ii) Deceased left a spouse but no children or grandchildren
Spouse takes 50% and parents take the other half, if no parents, brothers and sisters take the other half equally
(iii) Deceased left a spouse but no children or grandchildren or parents or brothers or sisters
Spouse takes 75% and relatives of the third degree of kindred take the rest. I can’t, for the life of me, fathom out who relatives of a third degree of kindred might be.
If the deceased didn’t leave a spouse, remember that the Statutory Portion is nil, because the Disposable Portion is 100%.
But, for intestate cases, there will be esates which will be distributed where there isn’t a spouse. For those, the distribution is as follows:
(i) Deceased children (and/or grandchildren)
Children take equal share if one of the children has died before, leaving children, then their children take their parents share.
(ii) Deceased left no children or grandchildren
Parents take in equal shares, if no parents, brothers and sisters take equally
(iii) Deceased no children or grandchildren or parents or brothers or sisters
We are now into relatives of third degree kindred and possibly relatives up to a 6th degree of kindred. Beyond that, it goes to the Republic of Cyprus.
Conclusions
1) Don’t die intestate and subject your estate to the Cypriot and/or UK intestacy rules – this is especially true if you are married.
2) The good news is that anyone who has a father who was born in the UK or a commonwealth country has complete freedom to distribute their Cypriot estate (and their UK estate) by Will.
3) Those who don’t have a father who was born in the Uk or a commonwealth counrty need to give some though to their circumstances.
Reducing IHT in the UK
You do need to have separate Wills in UK and in Cyprus – so that probate in each country can occur concurrently.
Although IHT in Cyprus is Nil, you will still pay it in the UK on the value of your Cypriot assets – if you are UK domiciled – and if you still have assets in the UK, then you will be UK domiciled – even if you are resident in Cyprus.
If you are married (or a couple) you can arrange your estate (in the UK and in Cyprus) so that you and your partner make use of both of your UK IHT allowances -referred to as the Nil rate Band (£275,000 now, £285,000 from 6th April).
In your Wills you each need to make a gift to the value of the Nil rate band into a discretionary trust and then allow the survivor to borrow the contents out of the trust. The trust is free of IHT on 1st death because the gift was at (or below) the nil rate band. Having borrowed the assets out of the trust the survivor then owns all of the assets – but subject to a loan.
Since IHT is paid on their subsequent death on their gross estate, less the debts, this reduces the survivors taxable estate while still allowing them full enjoyment of the whole estate.
If you each have sufficient assets in the UK to make the Nil Rate Band gift, then all the tax planning (through the discretionary trust & loan) can be dealt with in the UK will. But if you don’t have sufficient assets in the UK to make the Nil Rate Band gift, your Cypriot will also needs the same discretionary trust and loan provisions in it so that the survivors net
worldwide assets below the UK IHT threshold.
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