Home or away? A good result depends on where you pay your tax

Sometimes it feels as if Britain has already left the European Union or, at least, that all co-operation between the two has gone into cold storage until the dreaded Brexit finally takes place.

Not so. The wider negotiations between the EU and the UK may have stalled, but on a country-to-country level the normal business of international relations continues. And last week agreement was reached between London and the Republic of Cyprus on a matter of considerable importance to many British expats living here.

It was, and I quote from the official communiqué, the signing of a “protocol amending the Convention for the Elimination of Double Taxation with respect to Taxes on Income and on Capital Gains and the Prevention of Tax Evasion and Avoidance between the Government of the Republic of Cyprus and the Government of the United Kingdom of Great Britain and Northern Ireland.”

You probably fell asleep before you got that far and so missed the explanation that the “signed Protocol introduces grandfathering period for the calendar years ending on or before 31 December 2024 so that persons whose pension was subject to tax in Cyprus under the provisions of Article 19 (1) of the Convention of 1974, that individual may make an election that the provisions of that Article shall continue to apply for calendar years ending on or before 31 December 2024 to be taxed under the Convention of 1974 and exempted from the provisions of Article 18 (2) of the 2018 Convention.”

Clear as mud. But stick with me. For if, like a great many expats, you once worked for a department of the British government, or UK local government, then this matters to you.

UK government service pensions have been taxable only in the country in which the recipient is resident. But under a convention signed earlier this year, they will now be taxable only in the country which pays the pension. So, if you are a British government pensioner living in Cyprus you will find yourself paying tax to London, not Nicosia.

The significance of this move will vary from pensioner to pensioner, depending on your circumstances, but for some it is bad news. The protocol signed last week gives you a chance to postpone the change until 2024.

We’re not talking about state pensions here. Old age pensions will continue to be taxed as they are at present and

The UK and Cyprus agreed an amendment last week to the 2018 Double Taxation Convention in response to concerns by British nationals about one of its provisions in respect of government service pensions. The amendment will allow individuals to choose which basis of taxation they want to apply to their government service pensions. This choice can be made from 1 January 2019 until 31 December 2024. British High Commissioner Stephen Lillie and Finance Minister Harris Georgiades signed the amended protocol in Nicosia.

recipients need take no action.

But if you don’t want your government service pension taxed in Britain you must inform the UK authorities in writing. Your letter should say something like: “I elect for my government service pension to be taxed in Cyprus in accordance with the Double Taxation Convention between the UK and Cyprus. I understand that this election will continue to apply until December 31, 2024, or until I revoke it.”

Your letter should include your full name and address, UK Unique Taxpayer Reference (UTR) or National Insurance Number and a tax reference in Cyprus. It should be addressed to PAYE Self-Assessment, HM Revenue & Customs, United Kingdom, BX9 1AS.

If you want your UK government continue to be taxed in Britain there anything. service pension to is no need to do

But how do you know which is the best option? In this, as in all matters concerning pension payments to expats, it is wise to take professional advice.

The Woodbrook Group is an international firm of financial advisers. We are not owned by any financial institution or life insurance company and can offer you unbiased and impartial advice.

We offer a free pension review to help clients plan for the future. We can help you understand your options and how to address your income needs.

Michael Doherty is CEO of the Woodbrook Group

For more information, contact our team at the Woodbrook Group Office in Limassol: Berengaria 25, 25 Spyrou Araouzou, 6th Floor, 3036 Limassol, Cyprus.

+357 25272820 www.woodbrookgroup.com