By Nick Cairns, Partner, Blevins Franks
There are various financial benefits to moving to a smaller property. With careful planning you could unlock retirement funds and potentially tax-efficient income, while still leaving your family and heirs a lasting legacy.
Cyprus offers fantastic property opportunities in outstanding surroundings, so it is unsurprising that many Britons choose to retire to their own place in the sun.
Whether you buy your main home here or just for somewhere to holiday, property may be your biggest asset, with the potential to provide a substantial return on your initial investment over time. For many, their home is also a legacy to help secure the financial future of children and other heirs.
However, there are risks in relying on bricks and mortar for your wealth. After all, you cannot fully realise the financial benefits of a property while you are still living in it.
Compared to other investments, property can also prove very costly to maintain.
Size does matter
Generally, the larger the property, the more expensive the running costs. Mortgage payments, rates, utility bills, plus building and maintenance expenses can all add up to generate a relatively high ongoing burden. If you are retired with a reduced or limited income, this can be especially draining on your resources, particularly if you own more than one property.
Affording retirement
With today’s increased life expectancy, you may need your existing wealth to stretch to ten, twenty, or even thirty plus years in retirement. Are your pensions, savings and investments on track to sustain the lifestyle you want for as long as you need? Are they structured to protect you from long-term inflation and provide the increased income you may need in the future as the cost of living rises?
Many people find themselves in an ‘asset rich, cash poor’ situation, owning considerable physical wealth such as property but with substantially less disposable income. Expatriates in particular tend to hold on to UK property in addition to their Cyprus home.
While property can be a solid investment, it locks your money away in a highly illiquid way. If you want access to your capital, you may not be able to sell easily, nor for the right price. Also, there is risk in tying your funds up in one asset class – if the value of property drops, so does your investment.
Property offers potential leveraging opportunities, but like any debt arrangement, this comes with costs and risks. For retirees looking to shed debt and leave something behind for children and grandchildren, more borrowing is not the answer.
Benefits of reinvesting your capital
Downsizing property can help increase your accessible wealth, but it needn’t be a compromise when it comes to investment growth. By reinvesting in suitable investment funds, for example, you can still invest in real estate but alongside other assets (equities, bonds etc.) to reduce risk through diversification. And, unlike immoveable property, if you require small amounts of cash you can just sell the amount you need, not the whole investment.
A specialist adviser can help you explore investment arrangements that suit your particular circumstances, goals and risk appetite while being tax-efficient for Cyprus. You could also unlock other benefits that property cannot offer, such as a regular income and currency flexibility.
Income from investment income is often tax free in Cyprus. And while gains made on sale of a Cyprus property is liable to local capital gains tax, if you are selling a UK property you won’t need to pay tax in Cyprus, regardless of how much gain you’ve made.
Reducing taxation
Wherever your home is, charges such as stamp duty and capital gains tax generally increase with the property’s price tag. If you are hoping to become a non-UK domicile to avoid UK inheritance tax on your worldwide estate, having property in the UK does not help your case. And UK assets are always liable to UK inheritance tax, regardless of domicile, if your UK estate is above the £325,000 threshold. There is no inheritance tax in Cyprus.
Ultimately, while you want to make sure your family are looked after when you are gone, do not forget your own needs. Take personalised, cross-border advice to establish an investment and estate planning strategy that can secure a secure retirement for you in Cyprus today and a lasting legacy for future heirs.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
