UK vs Cyprus Tax: The Complete 2025 Comparison for Business Owners

A UK Ltd company director earning GBP 200,000 in profit pays roughly 60% in combined taxes - corporation tax, dividend tax, and eventually inheritance tax on whatever's left. The same person, running the same business, billing the same clients, pays approximately 18% in Cyprus. That's not an edge case or aggressive planning. It's the standard outcome for any business owner who relocates under Cyprus's non-dom regime.

This article breaks down every major tax head, line by line, with current 2025/26 rates. No vague promises of "tax efficiency" - just the actual numbers.

Corporation Tax

The headline difference: UK corporation tax sits at 25% on profits above GBP 250,000 since April 2023. Cyprus charges 12.5%, rising to 15% from 1 January 2026 under the OECD Pillar Two global minimum. Even after the increase, Cyprus's rate will be 40% lower than the UK's.

For IP-heavy businesses, the gap widens dramatically. Cyprus's IP Box delivers an effective 2.5% rate on qualifying income - patents, copyrighted software, and other IP assets. The UK's Patent Box offers 10%, four times higher. A software company generating EUR 500,000 in qualifying IP income would pay EUR 12,500 in Cyprus versus GBP 50,000 in the UK.

Dividend Taxation

This is where Cyprus obliterates the UK. A UK higher-rate taxpayer pays 33.75% on dividends above the GBP 500 allowance. An additional-rate taxpayer pays 39.35%. In Cyprus, a non-dom pays 0% on all dividend income. Zero. The only levy is the GHS (General Healthcare System) contribution of 2.65% on dividends, capped at EUR 180,000 of dividend income per year.

The SDC exemption is the critical mechanism. Normally, Cyprus domiciled individuals pay 17% SDC on dividends. Non-doms - which includes anyone not born in Cyprus or who hasn't been resident for 17+ years - are fully exempt. This status lasts for 17 years from the date you become Cyprus tax resident.

For a UK director taking GBP 150,000 in dividends, the UK tax bill is approximately GBP 47,506. In Cyprus, the same dividend (roughly EUR 175,500 at 1.17 exchange) triggers only EUR 4,651 in GHS contributions. Annual saving: over GBP 40,000 on dividends alone.

Income Tax Brackets

Cyprus's personal income tax rates are higher at the top end than most people expect. The top rate of 35% applies above EUR 60,000. However, the generous personal allowance of EUR 19,500 (compared to the UK's effective GBP 0 allowance for those earning over GBP 125,140) and the dividend/SDC exemptions mean the headline rates rarely tell the full story for business owners.

The UK's personal allowance taper is particularly punitive. Earn between GBP 100,000 and GBP 125,140, and your effective marginal rate hits 60%. Cyprus has no equivalent trap. The allowance stays at EUR 19,500 regardless of income level.

Most UK business owners relocating to Cyprus take a modest salary (EUR 20,000-30,000, taxed at 0-20%) and extract the rest as dividends (0% for non-doms). The income tax brackets matter far less than the dividend treatment.

National Insurance vs Social Insurance

UK National Insurance is a stealth tax that adds substantially to the total burden. Employer's NI at 13.8% effectively makes every GBP 1 of salary cost GBP 1.138. Cyprus's social insurance system is capped and significantly cheaper at higher income levels.

The cap is the key difference. A UK employer paying a GBP 150,000 salary faces roughly GBP 18,960 in employer's NI. A Cyprus employer paying the equivalent EUR 175,500 salary pays approximately EUR 5,282 - because contributions are capped at the insurable earnings ceiling of EUR 63,636. That's a saving of over GBP 12,000 per employee, per year.

Inheritance Tax

For wealthy individuals, IHT is often the single biggest motivator for relocation. The UK charges 40% on estates above GBP 325,000 (with a residence nil-rate band of up to GBP 175,000 per person). Cyprus charges nothing. No IHT, no gift tax, no wealth tax, no estate duty.

The 10-Year IHT Tail

Leaving the UK doesn't immediately free you from IHT. Under current rules, you remain within the UK IHT net for up to 10 years after losing UK domicile status. This "long tail" means:

• Your worldwide assets stay exposed to 40% IHT for years after you've left
• The tail period depends on how long you were UK resident (up to 10 years for those resident 20+ years)
• Proper structuring - including trusts, life insurance, and asset relocation - should begin well before your move
• From April 2027, unused pension funds will also fall within the IHT net, adding urgency to the timeline

A GBP 3,000,000 estate faces a UK IHT bill of approximately GBP 1,070,000 (after both nil-rate bands for a couple). In Cyprus, the same estate passes to heirs with zero tax. Over a family's lifetime, that difference compounds to millions.

Capital Gains Tax

The UK increased CGT rates on residential property to 18% (basic rate) and 24% (higher rate) from October 2024, with the annual exempt amount slashed to GBP 3,000. Cyprus takes a fundamentally different approach: CGT only applies to gains on Cyprus-situated immovable property. Foreign gains are entirely exempt for non-doms.

For entrepreneurs planning an exit, this distinction is enormous. Selling a UK company worth GBP 5,000,000 triggers approximately GBP 970,000 in CGT (using Business Asset Disposal Relief on the first GBP 1M, then 20% on the rest). Selling the same company as a Cyprus non-dom resident: GBP 0 in CGT on the shares.

The caveat: you must have genuinely established Cyprus tax residency before the disposal. HMRC's Temporary Non-Residence rules can claw back gains if you return to the UK within 5 years. Plan the timeline carefully.

Pensions

UK pension taxation has grown increasingly complex since the lifetime allowance was abolished in April 2024. While contributions still receive tax relief, withdrawals are taxed at your marginal rate (after the 25% tax-free lump sum). Cyprus offers a straightforward alternative for foreign pension income.

Cyprus lets you choose: pay the standard progressive rates, or elect a flat 5% on foreign pension income (after an annual exemption of EUR 3,420). For most UK retirees drawing GBP 40,000+ per year from their pensions, the 5% option saves thousands annually. A GBP 60,000 pension taxed at the UK higher rate costs roughly GBP 11,500. The same pension in Cyprus at 5% costs approximately EUR 3,279.

The impending inclusion of pensions in the UK IHT net from April 2027 adds another layer. A GBP 1,000,000 pension pot left to non-spouse beneficiaries could face a GBP 400,000 IHT bill in the UK. In Cyprus, that same pot passes untouched.

The Real-World Comparison

Theory is useful. Maths is better. Here's the complete calculation for a typical UK business owner considering Cyprus.

The Profile

• UK Ltd company generating GBP 200,000 annual profit
• Director takes GBP 50,000 salary + remainder as dividends
• No other income sources
• Married, one property worth GBP 2,000,000

Scenario A: Staying in the UK

Scenario B: Cyprus Non-Dom

The annual saving of GBP 65,398 alone would cover the purchase cost of a two-bedroom apartment in Limassol within 5 years. Add the IHT saving on a GBP 2,000,000 estate (GBP 670,000), and the total tax reduction over a decade exceeds GBP 1,300,000.

From 2026, when Cyprus corporation tax rises to 15%, the effective rate in Scenario B increases to approximately 19.4%. Still a 30-percentage- point improvement over the UK.

What About Double Taxation?

The UK and Cyprus signed a Double Taxation Agreement (DTA) in 1974, updated by protocol in 1980. It covers income tax, corporation tax, and capital gains tax. The treaty prevents the same income being taxed twice - but the details matter.

Key DTA Provisions

• Employment income: Taxed where the work is performed. If you work from Cyprus, Cyprus taxes the salary. UK-source employment income may be taxed in both countries, with a credit given
• Dividends: The DTA allows a maximum 15% withholding on dividends paid between countries. In practice, UK dividends to Cyprus residents face no UK withholding, and Cyprus non-doms pay 0%
• Interest: Maximum 10% withholding at source. Cyprus non-doms are exempt from SDC on foreign interest
• Pensions: Taxed only in the country of residence (Cyprus), not the source country (UK). This is what enables the 5% flat rate election
• Capital gains: Gains on immovable property taxed where the property sits. Gains on shares taxed only in the country of residence

Tie-Breaker Rules

If you're considered tax resident in both countries simultaneously, the DTA applies a hierarchy to determine which country gets primary taxing rights: permanent home, centre of vital interests, habitual abode, nationality. Most relocators resolve this by establishing a clear permanent home in Cyprus and demonstrating their personal and economic ties have shifted.

The critical point: the DTA doesn't help unless you've genuinely relocated. Maintaining your UK home, keeping children in UK schools, and spending most of your time in the UK will trigger the Statutory Residence Test regardless of your Cyprus tax certificate. HMRC actively investigates these arrangements.