by Nikolaos Prakas and Tom Cleaver

As of 2025, some British retirees living in Cyprus and getting a UK state pension are set to see the amount they receive fall as it will no longer be taxed on the island, but in the UK.

The tax rates on pensions imposed in Cyprus are more generous than those in the UK, and could impact people’s choice of where to live. Those set to change are pensions paid to UK government workers.

One concerned reader wrote to the Cyprus Mail, fearing a mass exodus of British pensioners living on the island if as of 2025 they will face a higher tax rate.

According to Desmond Smith, a retired schoolteacher living in Pyla: “No doubt the UK Gov’s treasury will receive a nice little booster with the repatriation of non-dom [non-domiciled] tax revenue.”

He added that the ramifications for Cyprus are “enormous”, and that the country would lose significant amount of tax revenue it currently collects from British pensioners in Cyprus.

Former Tala village councillor and British national Cathy Delaney echoed Smith’s sentiments, saying the planned change will “create problems for a lot of people.

“Retired teachers, retired police officers, and former military personnel all live here in Cyprus, and this effective increase on the amount of tax they pay will make a huge difference to their incomes. A lot of people have been very worried by this news,” she said.

She added her belief that people should “pay tax in the country where they live.”

According to the finance ministry, under a 2018 double taxation agreement between the UK and Cyprus, pensioners living on the island were able to choose to have their pension taxed in Cyprus or the UK.

Under that UK/Cyprus double taxation treaty, which was amended in 2019, UK government service pensions were taxable in the UK (unless the individual was a Cypriot national). This brought Cyprus into line with most other countries.

This reform was implemented gradually so that people could elect to apply the terms of the old treaty and have their pension taxed in Cyprus.

However, the agreement only foresaw this measure to be extended until the end of 2024, as a transitionary period.

Asked by the Cyprus Mail if there were any measures afoot to extend this measure past 2024, the finance ministry said that there was no such discussion or work ongoing.

This means that as of January 1, 2025 any UK retirees living in Cyprus and receiving a UK state pension will have it taxed in the UK before receiving it, as foreseen under the tax agreement.

Currently UK pensioners living in Cyprus and having their pension taxed in the UK were also entitled to have healthcare costs covered by the UK, meaning there is no extra fee to be included in the national health scheme (Gesy) in Cyprus, meaning they were free to enjoy its benefits.

The S1 form that allows this is filed with Gesy through the personal doctor or online and gives the pensioner access to the Cyprus health system at the same rates Cypriot citizens pay.

But, speaking to the Cyprus Mail on the matter of the 2024 end to the taxation of pensions in Cyprus, pension specialists from Blevins Franks wealth management said there is information to extend the measure.

“There are efforts afoot to get this changed,” a representative said, so that pensioners that chose to be taxed in Cyprus may continue to do so, where the tax regime is more favourable.

The Blevins’ rep added that even with Gesy there are some differences as to file the S1, UK citizens living in Cyprus need to be over 67, the retirement age in the UK. Otherwise, they will have the tax deducted from their pensions.

If retirees are under 67 the healthcare expenses are deducted from their pensions in the same way as tax is.

Asked if there have been complaints about the agreement change taking place at the end of 2024, the Blevins rep said “yes, there have been several”.

The tax rate in the UK stands at 20 per cent for income between £12,571 and £50,270. It then rises to 40 per cent.

Cyprus taxes all foreign pension income on a worldwide basis. Pensioners can choose how it is taxed each year, under two options.

Option 1 – at 5 per cent tax, meaning all pension income is taxed at a flat 5 per cent above a tax-exempt allowance of €3,420.

The other option foresees pension income added to other income for the year and taxed at the normal scale rates.

The first €19,500 is exempt. Tax then starts being applied at 20 per cent for income up to €28,000 and rises progressively to 35 per cent for income over €60,000.