New residents of Cyprus: make sure you know who will inherit your estate

In a previous article, we drew attention to the need to review assets and how they are held in order to avoid UK inheritance tax liability. The key is in the domicile, even more so after the decision of the British Government to tax the most basic of estate planning agreements. So what is home?

Home

In Cyprus, as in the UK, everyone is born with a domicile. This is usually the address of the father and is known as the address of origin. Tea home address is retained until a person proves by his actions that he has severed ties with his original domicile and established a domicile elsewhere – a house of choice. Moving to Cyprus and making it your permanent home with the intention of staying can be such an event.

With regard to movable property – bank accounts, stock portfolios and property other than real estate – it is the law of the domicile that governs the ability to bequeath property freely by reason of death. Many legal systems, including Cyprus, restrict this freedom so that the bulk of an estate passes to the testator’s family. The part of the inheritance that can be freely disposed of is called disposable portion and it ranges from a quarter when there is a spouse and child, to the entire estate when there is no spouse, children or descendants of children or father or mother.

Sounds complicated? continue reading The surviving spouse is entitled to a part of the statutory part (the part of the inheritance that cannot be freely disposed of by will) and of the non-alienated part, if any. The size of the share is determined by whether there are children or descendants of children, or ascendants or descendants of ascendants. Some, for example, the descendants of children, share their deceased father’s portion, others, such as the descendants of brothers and sisters, simply take equal shares. Anyone who has received a donation from the testator in life may have to take it into account. When there is no spouse and only very distant relatives, the beneficiary may turn out to be the Republic of Cyprus.

As mentioned above, the the law of domicile covers only personal property. Real estate passes in accordance with the law of the place where it is located. The will may or may not be valid in that country. The heirs of a testator who died domiciled in Cyprus, leaving a bank account in the Isle of Man and real estate in three other different countries may have to deal with five legal systems and pay three batches of estate taxes, before they can enjoy of his inheritance. They will remember it!

A possible solution

One answer to the problem is to avoid having to deal with probate laws. Assets placed in trust outside of Cyprus will not be covered by the will and the terms of the trust may ensure that they eventually pass to the testator’s intended beneficiaries.. The laws of most major offshore financial centers also exclude claims arising from the heir apparent laws of foreign countries.

Finally

Cyprus law contains a concession for British citizens who can freely dispose of their property by will. It may be a simple way out, but does it undermine the claim of a domicile in Cyprus? It certainly misses the opportunity to create a very attractive tax planning vehicle for heirs in the UK.

Ref: CO050606