Can you avoid tax by becoming Cypriot resident and selling UK property?
Going overseas and selling UK property without being taxed in the UK or overseas is very attractive to many property investors. Even taking account of the various reliefs you can offset, unless you let the property to a trade it's likely that a significant gain would arise.
Cyprus is well known as one of the low-tax havens of Europe, as well as having a strong UK expat presence and is itself a popular property investment location.
Tax treatment
The starting point when assessing the tax implications should be to have a look at the relevant double tax treaty. In this case the relevant extract of the UK-Cyprus treated states:
'...Article 2: Taxes covered
(1) The taxes which are the subject of this Convention are:
(a) in the United Kingdom of Great Britain and Northern Ireland: (i) the income tax; and (ii) the corporation tax;
(b) in Cyprus:
the income tax...'
Therefore, the treaty does not cover the tax treatment of capital gains. This means that the domestic rules of each country will be main determining factor.
Assuming you would be a Cypriot resident, yet disposing of UK property, you would need to consider the position under each country's rules.
UK
Providing you are non UK resident during the tax year of disposal of the properties, and remain overseas for at least 5 complete tax years, there will be no UK CGT charge on the disposal of the UK properties. Care must be taken to ensure that no contract is entered into prior to the tax year of non residence, as this could lead the UK taxman to subject any profits made to UK CGT.
Cyprus
Capital gains realized on 'immovable' property held outside Cyprus is exempt from Cypriot CGT as Cyprus CGT only applies to property located in Cyprus. Therefore providing you are a resident of Cyprus for the tax year of disposal, there would be no charge to tax in Cyprus on the disposal of a UK investment property.
Note that this does not apply if you are a property trader. If you are a property trader you could well be taxed on both countries, although you'd be eligible for a credit for any UK tax suffered against your Cypriot tax liability.
There are also anti avoidance provisions contained in S776 ICTA, that can treat a capital profit as income, and thereby subject to UK tax. This provision is not however an alternative to trading status, and providing your activities involve a simple acquisition and disposal of property(s) which would not be classed as trading on the facts, this provision would be unlikely to apply.
As such, UK property investments could be potentially sold free of all taxes in the UK.
About the Author
The Author of this article is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).
He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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