The new arrival becomes tax resident in Cyprus after living in the island for 183 days in a tax year. The tax year is the calendar year. Residence brings with it liability to income tax and to the special contribution for defence. The other main taxes are the immovable property tax and the capital gains tax.

However delightful it may be as a place to live, there are limited investment opportunities in Cyprus and the new resident will probably continue to hold investments, property and perhaps a business in the U.K. He may already have moved his banking accounts to the Isle of Man, Jersey or Guernsey. One of the consequences of continuing to hold assets in the U.K. will be an ongoing liability to income tax there. With the adoption of the European Savings Tax Directive interest received on the offshore banking accounts, may also be taxed, at a rate of 15%, but which will rise to 20% in 2008 and 35% in 2011. Depending on the nature of the income, relief may or may not be available against the corresponding Cyprus taxes and in most cases the end result is likely to be that tax is paid at the higher of the two rates.

Assets left behind in the U.K. will attract a charge to inheritance tax there on death, or on the death of the survivor if they are left to a surviving spouse. This tax is at the rate of 40% on the aggregate value of assets exceeding 275,000 sterling (increasing over four years to 325,000). If there are assets outside the U.K., for example, the offshore banking accounts, they are still vulnerable to this tax. How? You may ask. In two ways, firstly the executor of the U.K. estate is required to investigate and file a sworn declaration of assets and secondly the tax can, to the extent of the U.K. assets, be collected from the executor there. It can also be collected from any person in the U.K. who benefits from the estate at a later date.

Moving on to matters of inheritance, whilst tax may be the most pressing immediate issue it is also necessary to consider what happens on death. The new resident will, if he makes Cyprus his permanent home and breaks his ties with the United Kingdom, probably, eventually become domiciled in Cyprus. It may be important that he does so because it is only by acquiring a domicile elsewhere that his assets outside the United Kingdom cease to be potentially liable to inheritance tax.

The downside of becoming domiciled in Cyprus is that Cyprus succession law may apply on death. This restricts the ability to dispose of assets freely by will and sets out rules for the distribution of at least part of the estate. The rules are complex and vary according to whether there is a surviving spouse or children and they can result in an unexpected inheritance for a more remote relative.

As with tax, however, proper structuring, undertaken with the benefit of expert advice, can mitigate the impact of the succession laws. Such arrangements will be tailored to the individual circumstances and usually involve the use of trusts and companies established in zero or low tax centres.