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Question of the week

A question was recently put to us about living in Cyprus and tax.

Hello, I get Veteran email updates from GOV.UK. and it reminded me of the change to Double Taxation of Government Service Pensions (including HM Forces Veterans) with Cyprus in 2018. Those resident in Cyprus could submit an exemption until 2024, thereafter Pensions would be taxed at source (UK). Oddly, State Pensions will continue under the past Double Taxation agreement with Cyprus. Why are Gov. Service Pensions being targeted, and why can’t we exempt out under our present Double Taxation agreements ad infinitum?

Let’s start by saying, by convention UK Government pensions have always been taxed in the UK, whereas state pensions are taxable only in the country where the recipient is resident for tax purposes.

There have been a series of double taxation agreements (DTA) between UK and Cyprus notably in 1974 and then in 2018. The 2018 agreement sought to change the way in which UK Government pensions (including AFPS), so that from 01/01/2019 UK Government pensions would be subject to UK income tax.

A host of arguments were made at the time about taxation without representation, paying for services where you access them, and the divisiveness of taxing occupational government pensions in the country of origin, versus not doing so for private pensions.  So following a bit of an outcry (in which FPS attended the ratifying debate in the House), the only success that was achieved was a transitional period, and an amendment was tabled which had the following effect:

Anyone that was already in receipt of a UK Government pension, and resident in Cyprus, prior to 18 July 2018, could elect to have their pension taxed in Cyprus (rather than the UK) until 31/12/2024.

For most this was worth doing as the rate of tax charged in Cyprus on foreign pensions is only 5%. They are also known to have a very lenient normal income tax table (starting with a nil rate band of €19,500 and topping out at a rate of 35% on income over €60,000).

Why did HMRC and the UK Government do this?  Partly to harmonise DTA arrangements across Europe, and partly because – quite simply – they could do so relatively easily and it increased the UK tax take.  There is no prospect of the UK reversing this decision. 

We understand it’s tough on FPS members who made an informed choice about where to live, and who will lose 20% – 5% tax on that portion of the occupational pension schemes that is above the tax threshold.  However, do bear in mind that if you were to move back to the UK you would not save any tax; indeed you would probably pay more on the sum of your occupational and state pensions.


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