Inheritance Tax and Succession Laws for Britons Living in Cyprus: What You Need to Know

Cyprus continues to be a top destination for Britons seeking sunny climates, high living standards, and a familiar legal framework. Yet, beneath this appealing lifestyle lies a complex interplay of inheritance and succession rules, both in the UK and Cyprus, that expats must carefully navigate.

Understanding the UK’s New Inheritance Tax Rules Effective April 2025

Historically, the UK based its inheritance tax (IHT) liabilities largely on an individual’s domicile. Those domiciled in the UK were liable for IHT on global assets, while non-doms paid tax only on assets located within the UK.

The ‘15/20 rule’ introduced in 2017 treated anyone who lived in the UK for 15 of the previous 20 tax years as deemed domiciled for IHT purposes, increasing their exposure.

However, significant changes come into effect on April 6, 2025. The deemed domicile concept will be replaced by a long-term residence test. This means anyone who has been a UK tax resident for 10 out of the last 20 years will be considered a long-term resident with IHT liability on their worldwide estate.

Even after relocating, a “tail period” of IHT exposure lasting between three and ten years applies depending on the length of prior residency.

The IHT tax rate remains at 40% for estates exceeding the nil-rate bands. Individuals benefit from a basic allowance of £325,000, with an additional £175,000 residence nil-rate band when passing a main home to direct descendants. Couples can therefore potentially transfer up to £1 million free from IHT.

Cyprus: No Inheritance Tax but Succession Law Constraints

Cyprus abolished inheritance tax from January 1, 2000. This creates a tax-free environment on assets located within the country, regardless of value.

However, this does not fully protect British expats from UK inheritance tax if they fall under the new long-term residence rules, since the UK can tax worldwide estates. Moreover, the Cyprus-UK Double Tax Treaty covers income and capital gains tax but excludes inheritance tax.

Cypriot Forced Heirship and Its Implications

Unlike English law, Cyprus enforces forced heirship under the Wills and Succession Law (Cap. 195). This means certain fixed portions of an estate must be allocated to spouses, children, or parents, limiting the freedom of testamentary disposition.

For Britons, this raises the critical question: which legal system governs their succession?

Choosing the Applicable Law: The EU Succession Regulation Effect

Since August 2015, the EU Succession Regulation (EU) 650/2012 allows individuals to select the law of their nationality to govern their estate.

For British nationals residing in Cyprus, this means they can draft a Cypriot will specifying English law as the governing law of succession. This legal choice enables them to bypass Cyprus’s forced heirship rules and retain full freedom to distribute their assets.

If no choice is made, the law of the person’s habitual residence (Cypriot law, for most Britons living there) will apply by default.

Real-World Examples

• David and Susan, a retired couple in Paphos, own property and financial assets worth about £900,000. By making a Cypriot will that specifies English law, they can ensure their children inherit freely and avoid IHT, provided their estate remains within the £1 million allowance.
• John, recently relocated from Birmingham with an estate of £1.5 million held between the UK and Cyprus, remains liable for IHT under the long-term residence rules. While he can preserve testamentary freedom through English law in his Cypriot will, the estate above thresholds is taxed at 40%.
• Mary, a long-term resident in Limassol for over two decades, is likely outside the new UK IHT net. Choosing English law for her succession allows her to sidestep both Cypriot forced heirship and UK inheritance tax, passing her estate on without tax liability.

Key Takeaways for Britons Investing in Cyprus Real Estate

The landscape is intricate but manageable:

• Cyprus offers a completely tax-free inheritance framework on local assets.
• Forced heirship limits testamentary freedom under Cypriot law.
• UK’s April 2025 inheritance tax reform expands global estate taxation based on residence duration.
• EU law empowers Britons to elect English law succession, preserving greater control over their estates.

To optimize estate planning, British expats should draft a Cypriot will, designate English law for its governance, and proactively plan for UK IHT exposure. This approach avoids unnecessary burdens on heirs and smooths wealth transfer.

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