With the UK’s recent budget reforms, high-net-worth individuals (HNWIs) and business owners residing in the UK are confronted with a shifting tax landscape. A significant update is that non-domiciled (non-dom) individuals who have resided in the UK for over four consecutive years will now lose their non-dom status, thereby falling under UK tax on a global basis. In light of these changes, Cyprus has emerged as a compelling alternative for those seeking tax efficiency, offering a highly favorable non-dom tax regime and various pathways to secure residency status. This article outlines the latest UK tax changes and how Cyprus provides strategic benefits for international residents impacted by these reforms.

Key UK Budget Highlights Impacting Non-Domiciled Residents

The UK budget introduces reforms that notably alter the tax framework for non-dom individuals, emphasizing capital gains tax (CGT), inheritance tax (IHT), and the criteria for non-dom tax residency:

1. Capital Gains Tax (CGT)

• New basic and higher rates now stand at 18% and 24% respectively, effective from October 2024.
• CGT on residential property remains fixed at these updated rates, effective from October 2024.
• The CGT rate on carried interest shall be increased to 32% as from April 2025, until then the rate of 28% is applicable.

2. Inheritance Tax (IHT)

•  Frozen Nil Rate Bands: Nil rate bands will remain at £325,000 and £175,000 for primary residence, frozen until at least 2030, increasing the likelihood of estates being liable as asset values grow.
•  Updated Relief for Business and Agricultural Property (2026): The first £1 million of such assets will benefit from 100% IHT relief, with amounts exceeding this threshold qualifying for 50% relief.

3. Changes to Non-Dom Taxation

The inheritance tax (IHT) liability on non-UK assets currently depends on an individual’s domicile status, with non-domiciled individuals becoming subject to worldwide IHT if they have been UK residents for 15 of the last 20 tax years.

From 6 April 2025, IHT liability will shift from domicile to residency status. Under the new rules, individuals will be considered liable for worldwide inheritance tax if they qualify as long-term UK residents, defined as having spent 10 or more out of the previous 20 years in the UK.

End of Remittance Basis (2025): The remittance basis regime will be replaced by a four-year exemption for foreign income, applicable only for individuals meeting specific criteria, further limiting non-dom tax benefits.

Cyprus Tax Residency Options

Cyprus provides two residency pathways that allow individuals to attain favorable tax treatment, especially those who do not wish to be taxed on their worldwide income:

1. 183-Day Rule: This applies to individuals who spend more than 183 days in Cyprus per year, granting automatic tax residency.
2. 60-Day Rule: A unique Cyprus option, allowing individuals with substantial ties to Cyprus—such as property ownership, business involvement, or a directorship—to qualify if they spend more than 60 days per year in the Republic of Cyprus and do not exceed 183 days in any other country or hold tax residency elsewhere.

Non-Domiciled Status in Cyprus: Key Advantages

Cyprus’ non-dom regime offers notable tax incentives, particularly for international residents impacted by recent UK changes:

• Exemption on Foreign Income and Gains: Non-doms enjoy tax exemptions on dividends, interest, and certain foreign income sources.
• Capital Gains Tax (CGT) Exemption: Cyprus levies no CGT on foreign assets (excluding immovable property in Cyprus), enhancing tax-efficient wealth accumulation.
• No Inheritance Tax: Cyprus imposes no IHT, gift tax, or wealth tax, making it ideal for estate planning.
• Reduced Income Tax and Social Contributions: Non-doms can qualify for a 50% reduction on income tax if annual earnings exceed €55,000, with benefits available for up to 17 years, alongside lower social contributions.

Comparative Overview: UK vs. Cyprus Non-Dom Tax Regimes

Strategic Considerations for UK-Based Non-Doms

For HNWIs and business owners who are non-doms in the UK, Cyprus provides a tax-efficient solution amid these shifting tax dynamics. With the UK’s transition to residence-based taxation and the elimination of long-standing remittance-based benefits, Cyprus’ stable tax regime, clear eligibility paths, and exemption from inheritance taxes are highly attractive for wealth preservation. Non-domiciled individuals considering a tax-efficient residency strategy will find Cyprus an appealing jurisdiction, providing opportunities to optimize tax obligations while ensuring a favorable legal and financial framework for international income and assets.

For tailored advice on navigating these recent changes, please reach out to our team of experts Theo Antoniou or Christiana Antoniou.