Estate Planning in Cyprus

Estate planning is a fine balance between making provision for your spouse and heirs which often involves you divesting yourself of certain assets but, retaining sufficient income and capital to fully enjoy your retirement and deal with any unexpected events. The fact you might be considering buying a property in Cyprus and possibly moving there adds another layer of complication.

‘Forced Heirship’

In the UK, you are generally free to distribute your estate as you please by setting out your wishes in a will.

Under Cyprus law, the estate is split into a ‘statutory portion’, the disposition of which is defined by law, and a ‘disposable portion’ which can be left freely under the will. If the will disposes of more than the freely disposable estate, it will not be ignored; rather the amount left under the will is adjusted so that the correct proportion is left in this way.

Where there is a surviving spouse and/or child, they inherit two thirds of the deceased’s estate as of right between them, split into equal shares. So, if there is a surviving spouse and two children, they will each take one third of that two thirds (22.22% each) as of right.

If there is a spouse but no children or descendants of children, and at least one of the deceased’s parents are still alive, the statutory portion is half of the estate (and at least half of this will go to the spouse). If there is a spouse, but no child or descendants of a child and no living parent, the entire estate can be disposed of by will.

The EU introduced a new Succession Regulation in August 2015, which is also known as ‘Brussels IV’. Whilst the UK did not sign up to this legislation, and the UK is no longer a member of the EU, it remains relevant where a UK national either owns property in Cyprus and/or moves there.

The new law confirms the default position as the succession law of your country of residence, but where you possess the freedom to nominate the relevant national law – in this case the ‘home’ country of the UK you are national of – and override Cypriot forced heirship. This needs to be expressly stated in your will or similar legal document.

What about your will?

A UK will may be effective in Cyprus, but it must go through the probate process in the UK, after which it needs to be translated and notarised and then go through the probate process in Cyprus. It can therefore take a significant amount of time before a will can be finalised and the assets distributed. This is also a very costly process.

If you set up a Cypriot will for Cypriot assets, be aware this possibly might revoke an earlier UK will. It is the practice in the UK to include a provision to automatically revoking all earlier wills, so if you change your UK will subsequent to making a Cypriot will, make sure your solicitor does not inadvertently revoke the Cypriot will in the process.

Cypriot succession and gift tax

The Estate Duty (Amending) Law 2000 abolished Cypriot inheritance tax as of 1^st January 2000.

UK nationals who remain UK domiciled will still be liable to UK inheritance tax on their worldwide assets, unless a new domicile of choice outside of the UK has been established – please note, it is notoriously difficult to lose your domicile.

UK inheritance tax

British expatriates will therefore generally remain liable to UK inheritance tax even after living in Cyprus for many years. This is likely to result in UK inheritance taxes of 40% (after applicable reliefs and exemptions) on your worldwide assets.

There is a lot to take in and be aware of and these are really only examples. Good planning can ensure you minimise the tax that impacts you and your family and it helps to do so with specialists in this area.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.