Taxation

[Lynne]

Hi
We have recently sold a property in Limassol which we have owned for 3 years. We went to the Inland Revenue with our solicitor to obtain the Tax Clearance Certificate and pay the capital gains tax. When the inspector realised we had only had the property 3 years, and were living in another property, she said the profit would be taxed as income and not capital gains as it must have been bought as an investment (up to that point I thought investments were taxed as capital gains - as stated in all the literature from every builder I have looked at). We did not have any come-back on this decision. Depending on the profit made this could have a huge impact on the amount of tax paid and I wanted to let other people know about this as I had never heard of it before.
We were also told at this point that if we lived in Cyprus for 5 years and sold our house after that time we would be taxed as capital gains and receive an allowance of approx. 85000 euros, however contrary to literature I have read she told us that it didn't matter if the house was in joint names or not the 85000 euros would only be given once and not to each of us.

[Nigel Howarth]

Dear Lynne

I have not heard of this happening before and I am very surprised. If you made a capital gain from selling the property that should be subject to Capital Gains Tax. You would have been liable for Income Tax on any income you made from letting it.

What was your lawyer's opinion on this? There has to be a way that you can challenge their decision. (I had a similar problem when I shipped in money from our house sale in the UK - the clerk at the Inland Revenue said I would have to pay income tax on it - but then changed her mind after she'd made a phone call).

Also, have a word with an accountant from one of the leading firms - they will be able to advise you. And as I said, it's something I've not heard of before.

The second point on the €85,000 allowance is correct. It's an allowance on the property, not an individual allowance (and it has to have been you main residence for a minimum of five year). See http://www.cyprus-property-buyers.com/l ... ns-tax.htm for more information.

Regards,

[Nigel Howarth]

It's me again Lynne,

I've just spoken with one of the PriceWaterhouseCoopers partners in Cyprus. It seems that the Inland Revenue Department has some discretion on how they can tax you - Income Tax or Capital Gains Tax.

But is possible for you to contest their decision. What you will need to do is to work out what you'll be paying in Capital Gains Tax vs what you'll be paying in Income Tax to see if it's worth the effort and expense - there may not be too much difference.

Regards,

[Lynne]

Hello Nigel

Thanks for your help. We were definitely on the losing side but they wouldn't move on this. A superior was called in and said we must pay income tax. They did however tell us to go and see our accountant and fill in a tax return which gave us an allowance for that year. I was just so shocked as this has never been mentioned in any literature that I have read and certainly developers or solicitors don't tell you anything except capital gains will have to paid. Looks like they've found another lucrative way to raise tax revenue.

Lynne

[Nigel Howarth]

I was just so shocked as this has never been mentioned in any literature that I have read and certainly developers or solicitors don't tell you anything except capital gains will have to paid. Looks like they've found another lucrative way to raise tax revenue.

I hadn't heard of this before either. The PWC chap mentioned some changes to the law that took place in 2003. In hindsight it would have possibly been better if you'd set up a company to buy the properties as you'd be paying company tax on the disposal (at 10%). But without getting an accountant to do the sums, it's difficult to say which option would have involved the least disposal cost.

As I expect you know, there isn't a lot of money in the Cyprus government coffers. This is why (I expect) they are treating your disposal in this way - to maximise the tax revenue.

Regards,