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Archives for March 2017

UK Chancellor of the Exchequer, Philip Hammond, delivered the 2017 Spring Budget which included tax changes which affect foreign property investors

UK Chancellor of the Exchequer, Philip Hammond, delivered the 2017 Spring Budget which included tax changes which affect foreign property investors

UK Chancellor of the Exchequer, Philip Hammond, delivered the 2017 Spring Budget which included tax changes which affect foreign property investors

The changes announced this week, due to take effect as of the new UK tax year of 6 April 2017, adversely affect Cypriots and foreign nationals who own property in the United Kingdom (UK).

As of 6 April 2017, Cypriot and other foreign investors who own property in the UK, whether directly or indirectly through offshore companies and other vehicles, will have to pay Inheritance Tax at the rate of 40%.

Until now, Cypriots and other foreign nationals who owned property in the UK through offshore vehicles were exempt from paying the hefty Inheritance Tax imposed by the UK Government.

Inheritance Tax is a tax on the property, money and possessions of an individual who has died. The current rate of Inheritance Tax levied is 40% charged on part of the estate valued above £325,000. If an individual’s estate is worth less than £325,000 after death or if the estate is left to the spouse or civil partner or a charity as opposed to offspring’s, then there is no Inheritance Tax to be paid.

In a further blow to property investors, it was also announced that as of April 2017, investors with buy-to-let mortgages will not be able to claim relief from their tax liability on the full amount of mortgage interest paid. Currently, the full amount of mortgage interest paid is off-set from the tax liability. However, this is set to change as of April 2017 with the relief going from 100% to zero by April 2020 and all landlords with buy-to-let mortgages will have to pay tax on the full amount received less a tax relief fixed at 20%.

One way to beat this new tax hike is to restructure your property ownership and own property via a Company. The Government has also announced plans to reduce the corporate tax rate from 19% to 17% by 2020, just as the new buy-to-let changes will take effect.

The Chancellor also announced changes on the domicile status of an individual, whereby as of April 2017 a non-UK domiciled individual will be considered as domicile if they have been UK resident for 15 of the last 20 years.

In light of these changes recently announced as well as the impending ‘Brexit’, if you think these changes may affect you, please contact one of our expert advisers who can go through them with you and explore ways to mitigate the setbacks.

 

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Cyprus is experiencing ‘solid economy recovery’ according to the European Commission

Cyprus is experiencing ‘solid economy recovery’ according to the European Commission

Cyprus is experiencing ‘solid economy recovery’ according to the European Commission

The European Commission (EC) predicts growth of 2.5% in 2017 with inflation projected to be moderately positive.

According to the EC winter forecast, Cyprus is experiencing sound economy recovery with growth expected to continue and remain vigorous. The EC forecasts growth of 2.5% in 2017 and 2.3% in 2018 (2.8% in 2016). Inflation is expected to be moderately positive in 2017 and float at around 1.2% in 2017 and 1.1% in 2018.

The labour market is also expected to do well, with employment estimated to have increased by 2.7% in 2016 and is expected to grow by 2.2% in 2017 and an additional 1.8% in 2018 with unemployment declining by 12% in 2017 and 11% in 2018.

In a real sign of the general wellbeing and improvement of the Cyprus economy, by 2018 the debt is expected to be below 100%. For 2016, the debt stood at 107.4%, and it is expected to fall to 103.2 in 2017.

The budget of 2017 will show a deficit of -0.2% and notably, in 2018 and 2019 it is projected that it will show a surplus of 0.4%.

According to the University of Cyprus Economic Research Centre, forecasts for growth are much higher at 3.1%. While this figure is slightly more enthusiastic than the EC’s forecast of 2.5%, what is important is that all outlooks for Cyprus’s economy remain positive, with Cyprus really expected to grow and flourish as of 2017 and in the coming years.

The Cyprus Economic Research Centre report credits this growth to the robust Gross Domestic Product and employment growth experienced in the third quarter of 2016 as well as the moderate growth in the EU. Further, the normalisation of the domestic banking sector has greatly contributed to the stability of the economy and forecasts for further growth in 2017 and 2018.

The tourism industry, one of the largest sectors in Cyprus, has outperformed forecasts for 2016 and is expected to grow even further in 2017, with revenue generated from tourism in 2016 alone estimated to have surpassed €2.3 billion.

Undoubtedly, the Cyprus economy has come a long way in a relatively short period since the 2013 banking crisis. The banking system has since stabilised, public finances are on a healthy track and the Government has regained access to the markets.

It is then not much of a surprise that all reports, while varying slightly in their predictions, expect the Cyprus economy to grow and flourish in 2017 onwards.

 

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Increase in Property Prices in Cyprus

Increase in Property Prices in Cyprus

The first increase in property prices since 2009 has been reported in the last quarter of 2016, in a further sign of the stability and expansion of the Cyprus economy.

The Property Price Index has noted increases in property prices across all towns and asset categories.

According to the Property Price Index, an increase in residential property prices for houses and flats across Cyprus in the last quarter of 2016 has been recorded by 0.6% and 0.9% respectively.

The biggest increase documented has been in Limassol with an increase of 1.4% in prices for flats followed by Paphos, with an increase of 1.77% for houses.

According to the 28th publication of the RICS Cyprus Property Price Index (a quarterly price and rental index which tracks property and rental prices across Cyprus), compared to the third quarter of 2015, year on year prices of flats increased by 0.6%, 0.9% for houses and 0.9% for offices.

Tellingly, as the Cyprus economy has also shown significant signs of increase and stability in 2016, there has also been an increase of 0.8% in retail prices.

The volume of property transactions during the quarter was also higher on a year on year basis.

According to Mr Vakis Iacovou, Fellow Chartered Certified Accountant (FCCA), as the Cyprus economy is expected to grow further in 2017 and in turn, property prices are also expected to increase, now is the ideal time for investors to purchase assets in Cyprus.

 

Positive increases were also noted in rental values and gross yields.

In comparison to the third quarter of 2015, rents for flats increased by a staggering 5.3%, 6.7% for houses, 3.9% for retail, 3.5% for offices and 2.5% for warehouses.

At the end of the third quarter of 2016, average gross yields for apartments were at 4%, 2% for houses, 5.4% for retail, 4.4% for warehouses and 4.5% for offices.

According to the Central Bank of Cyprus, the positive growth of the property market in Cyprus is as a direct result of the expansion and stability of the economy overall. In the last quarter of 2016, the economy’s performance outperformed expectations.

It is predicted that as the economy stabilises and grows further in 2017, so too will the confidence in the property market return. Thus, it is anticipated that as demand increases in 2017, property prices across the island will grow from strength to strength.

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