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Tax Free Lump Sum

Posted: 17 Jul 2019 18:47
by Hawkeye
Hi All,

We are hoping to retire to Cyprus in the next few years.

The plan is to establish residency before BREXIT.

Get our MEU1 while renting, then buy a place when we have explored all the areas of the country.

My wife to be plans to retire by the time we buy the property.

I plan to carry on working a few more years and will commute back to the UK to work.

I will probably spend more time in the UK.

The plan is to carry on working, then using some of my current Defined Contribution pension + a small RAF pension to tide me over until I am 65.

I am almost 54 and plan to work until at least 57, more probably 60.

As I understand it, you automatically become Tax resident in Cyprus if you spend 183 days there.

I can currently take 25% of my pension as a tax free lump sum (U.K. tax rules).

If I am a Cypriot tax payer, this is no longer possible, so I am paying tax when I do not need to.

So I imagine the way forward is to avoid spending 183 days in Cyprus prior to drawing the 25% ?

I can then use my cash in the bank + the U.K. tax allowance of £12,800 to perhaps give me an annual income of £19,000 (so draw £12,800 out of my pot and top up £6,200 from savings in bank until I hit 65).

But my next dilemma comes at 65 - I plan to defer my old Final Salary pension until 65 (my normal retirement date), otherwise I lose value by drawing early.

But I put a lot of money into AVC contributions, with the aim of taking a Tax free lump sum on this.

If by 60, I am classed as a Cypriot Tax payer, can I spend less that 183 days in Cyprus and more than 183 in the U.K. (Long holiday) and become UK Tax resident again for one tax year ?

Then draw the 25% tax free lump sum, before moving back to normality and the house in Cyprus.

Unfortunately the AVC's and pension are linked, so I cannot take the AVC'S earlier.

My only other option is never to spend more than 183 days in Cyprus between turning 59 and 65.

Surely people must move back and forth between tax regimes.

Hoping someone can advise

Re: Tax Free Lump Sum

Posted: 18 Jul 2019 14:23
by Nigel Howarth
Hi Hawkeye and welcome to the Forum

BREXIT (allegedly) will happen on 31st October - deal or no-deal. If there is a deal you'll have a two-year transition period to work things out.

I guess you've seen what information the authorities require before granting a Registration Certificate (MEU1) (Residency required a MEU3.)

You'll need to speak with a Tax consultant, but I cannot see why you could not take the 25% tax-free lump sum without being taxed n Cyprus. (Also, as it's a RAF pension, you can elect to pay on it in the UK - see Pension Christmas Present from HMRC.)

It may be possible to change your residency for tax purposes, but I've not heard from anyone else who has done this.


Re: Tax Free Lump Sum

Posted: 19 Jul 2019 01:19
by Hawkeye

My RAF Pension is only small - May only be £1,500 to £2,000 at best by the time I am 60 (I realise this will be taxed in the U.K.)

But I have other pensions from other employers + a larger one from my current employer.

They closed the scheme (Final Salary) and it index links with inflation until I am 65.

I also put extra money in in the form of AVC’s

If I leave it all until 65, I get 25% of 20x Final Salary value + the AVC value

So the longer I leave it the more I would get as a tax free lump sum.

But if I have moved to Cyprus and am paying local tax, then I don’t get a tax free lump sum.

I would have to spend 183 days in the U.K. as I see it before drawing the lump sum.

If Cyprus charges 5% on all income (minus the first € 3,000) it would probably cost more to rent a place in the U.K. for 6 months when the lump sum is due than the 5% tax bill.

There is something called Split Year, but I need to look into that.

On the subject of MEU1, does anyone know the questions they ask at the immigration interview ?

Re: Tax Free Lump Sum

Posted: 19 Jul 2019 08:18
by Nigel Howarth
Hawkeye wrote:
19 Jul 2019 01:19
On the subject of MEU1, does anyone know the questions they ask at the immigration interview ?
It isn't really an interview - it's checking the information that you take with your application. (I don't know of anyone who's been refused - I've been here for 17 years.)

When you visit Immigration to make an appointment, the receptionist will give you a list of the information you should take, most of it's listed on the MEU1 form.