A recently-revised double tax agreement between the UK and Cyprus, signed last month, “could result in higher taxes for some retired British residents in Cyprus, whose pensions are paid by the UK government”, according to media reports on the island.
Cyprus has long been a popular retirement destination for Britons, many of whom are attracted by its agreeable climate, historical ties with the UK and relatively low cost of living.
Around 60,000 Brits are estimated to live in Cyprus, which is located in the eastern Mediterranean Sea, south of Turkey and to the west of Syria and Lebanon.
The revised DTA, which is based on the OECD Model Convention for the avoidance of double taxation on income and capital, will result in changes to the tax arrangements of “those in receipt of pensions paid by Her Majesty’s Government, local authorities and ‘political sub-divisions’ “, which will see them taxed by HMRC on this income, according to Cyprus Property News, an online property publication published by Nigel Howarth, who himself hails from the UK, having arrived 16 years ago.
In a story published on Thursday, Howarth writes that the new tax is expected to “impact pensions received by retired UK civil servants, armed forces personnel, NHS staff, teachers, local government employees, police etc, whose pensions will be taxed by HMRC once the 2018 [OECD] convention has been implemented”.
“From the correspondence I’ve received, this change will come as good news to some and bad news to others,” Howarth adds, in his story.
“In some cases the change will result in them paying no tax in Cyprus or UK, as their income falls below the tax thresholds in both countries. Some will pay about the same, while others, with large pensions and those with HMG [Her Majesty’s Government] pensions and other income that is taxed in the UK (Eg, from UK property rental) will pay more tax.”
Howarth writes that he has also received “many angry emails, predominately from retired armed forces personnel resident in Cyprus, demanding to know why the UK is discriminating against those who served their country in the public service”.
But he adds: “I have reviewed several UK Tax Treaties including Albania, Bahrain, Canada, Japan and Spain; all of them require HMG pension income to be taxed by HMRC.
“Options I suggest those who may be negatively affected by the change to consult a UK tax consultancy to see what options are available, if any, to legally reduce their tax liability.”
In a separate but related matter, the Cyprus Mail has reported that the Cypriot tax authorities are considering introducing a tax on short-term property rentals, such as those arranged through the Airbnb website, “which, due to loopholes in the law, are not [currently] subject to tax”.
The publication quoted the author of legislation that would introduce the new tax as saying that many Cypriot property owners rent out rooms and apartments online and, as a rule, such income is not declared and is therefore not subject to VAT, while no quality controls exist.
To read the Cyprus Mail‘s story, click here.