Thousands of Britons have settled in Cyprus, drawn by the sun, the quality of life, and a familiar legal system. Yet behind the idyllic lifestyle lies a complex web of legal and tax rules.
The United Kingdom imposes inheritance tax (IHT) under new rules effective from April 2025, while Cyprus, although it has abolished inheritance tax, applies its own succession law which restricts freedom of disposition.
The new UK regime
Until recently, inheritance tax in the UK depended largely on domicile. A UK-domiciled person was taxed on their worldwide assets, while non-domiciled individuals (non-doms) were taxed only on assets situated in the UK.
The ’15/20 rule’ introduced in 2017 meant that anyone who had lived in the UK for 15 out of the past 20 tax years was deemed domiciled for IHT purposes.
As of April 6, 2025, the deemed domicile concept has been abolished and replaced by the long-term residence test. Anyone who has been a UK tax resident for at least 10 out of the previous 20 years is considered a long-term resident and is subject to IHT on their worldwide estate.
Even after leaving the UK, liability continues for a “tail” period of between three and ten years, depending on the length of prior residence.
The IHT rate is 40 per cent on estates above the threshold. Every individual benefits from a nil-rate band of £325,000, and there is an additional residence nil-rate band of £175,000 when the main home passes to direct descendants.
This means that a married couple can potentially pass on up to £1 million to their children free of IHT, provided the conditions are met. Above these thresholds, however, the 40 per cent rate applies.
The Cypriot reality
Cyprus presents a strikingly different picture. Inheritance tax was abolished with effect from January 1, 2000. Today, no inheritance tax applies to assets located in Cyprus, regardless of their value.
However, this does not mean that British expatriates are entirely free from concern. The Double Tax Treaty between Cyprus and the UK applies to income tax and capital gains tax but does not extend to inheritance tax.
Consequently, even though Cyprus imposes no such tax, the UK may still levy IHT on Cypriot assets if the deceased falls within the long-term residence rules.
Forced heirship under Cypriot law
Another important distinction lies in Cypriot succession law. The Wills and Succession Law (Cap. 195) provides for forced heirship. If the deceased leaves a spouse, children or parents, certain fixed shares of the estate must pass to them. The testator is free to dispose only of the remaining portion.
This contrasts sharply with English law, under which a person enjoys complete freedom of testamentary disposition. For Britons living in Cyprus, the key question becomes: which law will govern their estate?
The right to choose your law
The answer comes from the EU Succession Regulation (Regulation (EU) 650/2012), in force since August 17, 2015. Under Article 22, every individual may choose the law of their nationality to govern their succession.
This means that a British national residing in Cyprus can, through a Cypriot will, specify that English law shall apply to their estate.
In this way, they avoid the application of Cypriot forced heirship rules and retain freedom of disposition.
If no express choice is made, the law of the deceased’s habitual residence at death will apply, which for Britons settled in Cyprus means Cypriot law.
Practical scenarios
For example, a retired couple in Paphos, David and Susan, own a villa and bank accounts worth around £900,000. By drafting a Cypriot will that opts for English law, they can freely leave their assets to their children. If their estate falls below the combined £1 million UK allowance, no IHT will be due.
In another case, John recently moved to Cyprus from Birmingham. With an estate of £1.5 million spread between the UK and Cyprus, John remains within the scope of IHT as a long-term resident.
His Cypriot will can preserve freedom of disposition under English law, but the estate will still be subject to 40 per cent IHT on the value above the allowances.
Whereas, Mary, a long-term resident of Limassol, having lived in Cyprus for over 20 years, may no longer fall within the UK’s long-term residence rules.
By invoking English law in her Cypriot will, she avoids both Cypriot forced heirship and UK inheritance tax. Her estate can pass as she wishes, free from tax in both jurisdictions.
The picture is complex but clear. Cyprus offers a tax-free environment for inheritance, but limits freedom through forced heirship rules.
The UK applies, from April 2025, a stricter residence-based IHT regime, taxing worldwide estates at 40 per cent above the thresholds.
EU law empowers Britons in Cyprus to opt for English law and maintain control over their succession.
For Britons in Cyprus, the strategy is threefold: make a Cypriot will, elect English law and plan proactively for IHT exposure.
Only through careful legal and tax planning can they ensure that their estate passes smoothly and according to their wishes, without unnecessary burdens on their heirs.
