The UK Budget for 2025, announced in late October 2024, has introduced a series of tax changes impacting individuals and businesses, creating a mixed outlook for many taxpayers. With the Labour government’s goal of raising an estimated £40 billion to fund critical areas like the NHS and public services, a broad array of tax policies are being reshaped. Notable changes include increases in capital gains tax (CGT), modifications to inheritance tax (IHT), heightened national insurance contributions for employers and strict UK non-domicile rule, all of which could place a heavier financial burden on UK taxpayers moving forward.
The Aspen Trust Group provides expert guidance on leveraging Cyprus’s tax benefits, such as the 60-day non-domicile rule, tax-free dividends, and a corporate tax rate of 12.5%, helping High Net Worth Individuals (HNWI) transition effectively.
Key Tax Changes in the UK Budget 2025
The budget’s major tax shifts include:
1. Capital Gains Tax (CGT) Increase:
CGT rates have risen from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers. Capital gains tax rates for residential property sales remain at 18% for basic-rate and 24% for higher-rate taxpayers. The changes primarily impact assets like shares, not residential property. The change is expected to generate additional government revenue, especially from those with significant investment portfolios.
2. Inheritance Tax (IHT) Thresholds and Adjustments:
The IHT threshold will remain frozen until 2030, but starting from April 2027, inherited pension pots will be subject to inheritance tax. This change adds a significant burden to individuals, as pensions, originally designed to fund retirement, can no longer be used as a tax-efficient means to transfer wealth. This development is likely to complicate succession planning and create additional financial challenges for families.
3. Employer National Insurance Contributions:
From April 2025, employer national insurance rates will increase from 13.8% to 15%, which may cause additional pressure on businesses. To partially offset this, the Employment Allowance is being doubled to £10,500, providing relief to smaller businesses. Nonetheless, larger businesses may feel the pressure, possibly limiting wage growth or hiring.
4. UK Non-Domicile Rule:
Starting April 2025, the UK will abolish non-dom tax status, introducing a residence-based Foreign Income and Gains (FIG) regime with a four-year exemption on foreign income for qualifying newcomers, provided they have not been UK tax resident in the 10 tax years immediately prior to their arrival (4-year FIG regime).
This change to the non-domicile rule introduces stricter requirements for reporting foreign income and assets, aiming to increase tax transparency and reduce avoidance associated with overseas holdings. These updated requirements reflect the government’s intent to tighten tax oversight across jurisdictions.
Why Cyprus? Tax Benefits for UK Residents
For UK citizens seeking tax efficiency, Cyprus presents an attractive alternative. Its tax policies offer unique advantages, especially for those looking for a Mediterranean relocation with favorable tax treatment.
1. 60-Day Rule – Non-Dom Tax Residency:
Cyprus offers a unique 60-day rule, allowing individuals to obtain Cyprus tax residency by residing in the country for as few as 60 days a year, provided they are not tax residents (183 days) in any other country and meet additional requirements. This rule ensures that foreign income, such as dividends, interest, and rental income, is typically exempt from Cypriot taxes, and there is no capital gains tax (CGT) on certain assets. This policy is especially attractive to UK nationals seeking to optimize their tax structure.
2. Low Corporate and Income Taxes:
Cyprus offers one of the lowest corporate tax rates in the EU at 12.5%, coupled with a personal income tax threshold that exempts income up to €19,500. For income exceeding this threshold, progressive rates apply, but generous exemptions and deductions exist, making the overall tax burden lighter compared to the UK’s higher progressive income tax structure.
3. Tax-Free Dividends and Interest:
Under the Cyprus non-dom rule, dividends and interest income from abroad are free from Cypriot taxation. This is advantageous for UK investors, who are now subject to higher CGT and dividend taxes back home. Additionally, Cyprus does not impose an inheritance tax, a relief to those facing high IHT rates in the UK.
Why UK Residents are Attracted to Cyprus?
The tax advantages in Cyprus align well with the needs of UK taxpayers now facing more restrictive fiscal policies. With new and increased taxes in the UK, Cyprus’s tax-friendly environment provides a strategic relocation option, especially for business owners, investors, and high-net-worth individuals looking to maximize financial efficiency.
For those frustrated by the UK’s rising tax costs, Cyprus’s advantageous tax regime, sunny and beautiful environment, and status as a member of the EU make it a compelling alternative to consider.
Why Choose the Aspen Trust Group?
We, the Aspen Trust Group, stand out for our wealthy experience and proven success in managing international tax structures, with a focus on maximizing Cyprus’s tax benefits. From handling non-dom status applications to comprehensive financial compliance, our skilled team provides hand-to-hand support for clients looking to relocate their finances or businesses. Our customized approach ensures a smooth relocation experience, protecting client wealth and simplifying compliance with Cyprus tax policies.
At the Aspen Trust Group, our mission is to simplify the path to a tax-efficient future in Cyprus. To explore how we can help you maximize the benefits of Cyprus’s tax system, contact us today for a consultation.