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ProACT Sam Orgill highlights the tax liabilities we don’t leave behind when living and working abroad 

When you relocate abroad long term you need a resident permit to stay beyond 90 days at a time. 

When you have a resident permit you could become tax resident in any another country, like Cyprus, with a double taxation treaty in place with your home country for example the UK.

This is monitored using biometric ID cards and cross border records.  In 2025 electronic travel authorities will be extended to the UK and EU to give full biometric data on all travel cross border - read more about ETIAS. 

The government residency and tax agencies can see how many days you spend and where. 

You cannot choose not to be tax resident in Cyprus or your country of residence if you spend more than half the year as resident. 

The local tax office is entitled to its share of tax and a local tax return is usually required. 

The UK and local Cyprus tax office can exchange balances due between themselves to keep governments happy but you may need to pay the highest tax rate due between country of tax residence. 

You could need to do tax returns in both countries if you have the taxable income or capital fixed to that country. 

Not all your tax liabilities move with you. 

TAXED ON DOMICILE STATUS 

While your tax residence can change with residence or remote work or overseas contract working, your domicile is not as flexible. 

Your legal domicile is where you and your parents are from. That may not be where you were born but that your parent’s nationality. For most people it’s the country they are born in and have nationality of like their parents. 

Your domicile remains with your country of origin and gives that country the primary right to tax your worldwide income and capital. 

Your tax residence can change but only if there is a double taxation treaty between your country of origin and country of tax residence. The double taxation treaty allows the two governments to exchange info on your tax payments and share the tax receipts between themselves as agreed in the double taxation treaty. 

It also offers the next budget of the new UK government scope to extend capital and inheritance taxes to UK expats Living and Working Abroad, without increasing income taxes in the UK. 

FIXED ASSETS 

Certain incomes and capital assets can be fixed to your home country. They may not move depending upon the specifics of the double taxation treaty between the countries - not all double taxation treaties  are the same. 

In the UK property rental income and the capital gain on sale is fixed to the UK.  

Already property capital gains are treated differently to other assets with higher rates of capital gains tax - 18 or 24% - compared to other capital gains - 10 or 20%. 

There is an easy step for a UK tax rates to creep up  by adjusting all capital gains taxes to those rates or making them the same as UK Income taxes -20 or 40 or 45%. 

Currently for non property capital gains expats are assessed for the capital gains tax, but could defer payment for up to 5 years before the liability falls away. 

This is not the case for property where expats must pay capital gains tax on sale even if tax resident Living and Working Abroad. 

The tax creep here would be to remove the deferred liability from UK domiciled expats Living and Working Abroad. 

INHERITANCE TAX

Inheritance tax is a form of capital gains tax. On death you don’t pay the capital gains taxes on assets sold but the whole estate is taxed on inheritance tax at 40%. 

This gives a £325,000 allowance per person plus an additional £175,000 if you have a principal private residence in the UK at death (not a rented property..)

Again inheritance tax is based on your domicile - if that is the UK then it applies to worldwide assets including Cyprus. 

If exchange of tax office information allows this could be enforced on death even while abroad. 

Any estate around the world requires the administrators to notify pension payers, investment company’s , banks around the world. Tax clearance of an individuals estate could still be required even without UK administration of probate. 

DISTANCE CHANGES

Tax creep opportunities for the UK could be to adopt a tactic to extend fixed tax liabilities of assets to the UK to expats. 

Already the new UK government is committed to changing the tax liabilities for UK non-dom expats to the UK. This could easily creep into extending the reach of inheritance and capital gains or other taxes to UK expats Living and Working Abroad. 

Domicile can be changed but it’s hard and takes time. At least 3 years maybe 20. 

In the UK an expat will be deemed domicile to the UK  after 15 years as tax resident for worldwide inheritance, capital gains and incomes. 

In Cyprus an expat can be deemed non domiciled to Cyprus for 17 years and use this non dom tax registration to pay no dividend or saving tax at a flat 17%. 

Noting that by declaring to the Cyprus tax office you are not domiciled to Cyprus then you are in a way confirming your domicile of origin and liability to UK inheritance and capital gains tax. 

DO NOT GIVE UP

With inheritance tax and domicile assessments you may have to wait until till you die to be certain. HMRC won’t offer an opinion unless they assess a tax return. 

You can take steps to change your domicile and make the appropriate case for a domicile of choice. This can only be assessed on death. 

Gifting assets can avoid capital gains and taxes. You may lose control of the asset so that may be a consideration or limitation for your family. 

Using a Family Trust could be a best way to avoid inheritance and capital gains taxes and the cost and delay of probate. 

A Family Trust is like a company in that it is a separate legal tax entity so not subject to personal taxes.  The family property, investment, business, yacht and valuables can be owned by the trust, controlled by the family trustees, but the family members can still enjoy the assets. 

You don’t need to own the property to live in it. 

ProACT Know How 

ProACT Partnership can offer advice and guidance for expats living and working abroad to protect families assets from existing fixed inheritance and capital taxes. 

We can also look forward to the tax creep that could increase your liability - without you moving - to fixed inheritance and capital gains as well as tax creep impacting domicile and non domicile tax status. 

Contact us for help & guidance