ARTICLE
4 November 2024

UK's New Tax Amendments: A Turning Point For HNWIs – Why Cyprus Stands Out As An Ideal Solution

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S&A

Contributor

C.Savva & Associates Ltd (“S&A”), a Cyprus registered company, is authorised and regulated by the Cyprus Securities and Exchange Commission. S&A provides high level Cyprus and international tax advice, assists with the formation and ongoing administration of Cyprus companies, investment funds, international trusts, special license firms and offshore structure.
On October 30, 2024, UK Chancellor Rachel Reeves introduced a budget that brings substantial changes to the taxation of high-net-worth individuals (HNWIs).
Cyprus Tax

On October 30, 2024, UK Chancellor Rachel Reeves introduced a budget that brings substantial changes to the taxation of high-net-worth individuals (HNWIs). Key measures include increased taxes on wealth and the formal decision to abolish the non-domicile (non-dom) tax regime by April 2025. These changes will significantly impact HNWIs in the UK, prompting many to explore more favorable tax jurisdictions. Cyprus, with its advantageous non-dom tax scheme, emerges as an appealing option for those considering a shift in tax residency.

Key Tax Amendments Affecting HNWIs

  1. Abolition of the Non-Dom Regime: The UK government has announced the termination of the non-dom tax status effective April 2025. This regime previously allowed UK residents who were domiciled abroad to limit their UK tax liabilities, particularly on foreign income and gains. With this change, all UK residents will now be taxed on their worldwide income, effectively removing the tax advantages non-doms once enjoyed.
  2. Increased Capital Gains Tax (CGT) Rates: The budget introduces higher CGT rates, with standard rate taxpayers now facing an 18% rate and higher rate taxpayers a 24% rate, up from 10% and 20%, respectively. This change affects gains from the disposal of assets, including investments and property, impacting the overall financial planning for HNWIs.
  3. Inheritance Tax (IHT) Adjustments: The budget caps IHT relief for agricultural and business properties at £1 million. Additionally, starting in April 2027, pensions inherited will be included in the deceased's estate for IHT purposes, potentially increasing the tax burden on beneficiaries.
  4. Employer's National Insurance Contributions (NICs): NICs for employers will increase to 15%, with a lower threshold expected to generate £25 billion annually. This change may indirectly affect HNWIs involved in business operations.

Implications for HNWIs

The abolition of the non-dom regime and the hike in taxes on capital gains and inheritance significantly increase the tax liabilities of HNWIs residing in the UK. With the removal of favorable tax treatments for non-doms, foreign income and gains will now be subject to UK taxation, potentially resulting in a much higher tax burden. These changes are likely to prompt HNWIs to reassess their tax residency to preserve tax efficiency.

Cyprus Non-Domicile Scheme: An Attractive Alternative for HNWIs

For UK-based HNWIs seeking a tax-friendly jurisdiction, Cyprus offers a compelling solution with its straightforward and highly beneficial non-domicile (non-dom) scheme. This program is designed specifically to provide tax advantages for individuals who establish Cyprus as their primary residence without intending to stay permanently. Key benefits include:

  • Exemption from Worldwide Dividend, Interest, and Rental Taxes: Cyprus non-doms are not subject to Special Defence Contribution (SDC) tax on income from dividends, interest, or rental properties. This offers significant savings for individuals with diverse income sources.
  • No Inheritance Tax: Cyprus has abolished inheritance tax, allowing non-doms to plan for wealth transfers without incurring additional tax liabilities.
  • Capital Gains Tax Exemptions: There's no capital gains tax on profits from the sale of securities, such as stocks and bonds, making Cyprus particularly attractive for investors.
  • Competitive Personal Income Tax: Cyprus residents benefit from favorable personal income tax rates, with the potential for generous allowances and exemptions.

Qualifying for the Cyprus non-dom scheme is straightforward. To become a Cyprus tax resident, one must either spend 183 days in Cyprus within a tax year or meet the "60-day rule." This rule requires spending at least 60 days in Cyprus, maintaining a residence, and having ties to a Cyprus-based business or employment.

These benefits make Cyprus a highly appealing choice for HNWIs who want a tax-efficient, well-regulated, and convenient base in the EU. For more detailed information, please visit http://www.savvacyprus.com.

Conclusion

The recent UK tax amendments, particularly the abolition of the non-dom regime, represent significant challenges for HNWIs seeking tax efficiency. Cyprus' non-dom scheme offers a compelling alternative, with substantial tax benefits and a favorable living environment. HNWIs considering a change in tax residency should consult with tax professionals to explore the options available in Cyprus and ensure compliance with all legal requirements.

As the UK landscape evolves, Cyprus stands ready as an ideal destination for those seeking to safeguard their wealth and optimize their tax strategy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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