Retiring to Cyprus from the UK: what happens to your pension tax and to UK inheritance tax

From 6 April 2027 most unused pension funds in the UK will count towards the estate for inheritance tax. It is already law, in Finance Act 2026; the Budget of 28 October 2026 announced only minor technical amendments. If you are weighing a retirement in Cyprus, it sharpens a question you already had: once you move, which country taxes the pension, and what does the UK keep?

The short version: Cyprus taxes most UK pensions, and at a low rate. Two things stay with the UK. A government service pension is still taxed there, and UK inheritance tax keeps covering you for up to 10 years after you leave. Every figure below is the position as at 3 November 2026.

Who taxes your pension once you live in Cyprus

The answer sits in the 2018 UK–Cyprus tax treaty, in force since 18 July 2018 and applied to UK income tax from 6 April 2019. Article 17 gives the right to tax a pension to the country where the pensioner lives. Article 18 makes an exception for pensions earned in the service of the state.

The State Pension is not a government service pension. GOV.UK says so in as many words, so it falls under Article 17 and is taxed in Cyprus.

A government service pension is one paid for services to the UK government, a political subdivision or a local authority, by them or out of funds they created. HMRC's guidance gives the definition but names no schemes. If your pension comes from a public-sector scheme, ask the scheme or HMRC which side of the line it is on before you move: the answer decides which country taxes it.

Resident in Cyprus means resident for the treaty. If the UK still counts you as resident under its own rules, Article 4(3) settles it, starting with where you have a permanent home. Keep a UK house available to live in, and the answer may not be Cyprus.

People who already lived in Cyprus and drew a government pension before 18 July 2018 could choose to stay under the old treaty's rules. That option ended on 31 December 2024; since 2025 the 2018 rules apply to everyone.

Lump sums. Article 17 does not mention them, but Cyprus law does: Article 8(11) of the Income Tax Law exempts a lump sum from contributions to a pension fund set up in the UK, provided the Tax Commissioner approves the fund for that purpose. Get the approval question answered before you take the money, not after.

What Cyprus charges on a pension

Article 20 of Cyprus's Income Tax Law taxes a pension for services rendered outside Cyprus at a flat 5% on the amount above €5,000 a year. The threshold was €3,420 until 31 December 2025.

The 5% is a choice, made every year in the tax return. You can instead put the pension through the normal bands, where the first €22,000 of income is not taxed at all:

If the pension is your only income, the two cost the same at about €27,700 a year: below that the bands are cheaper, above it the 5%. The full list of 2026 rates is in our article on Cyprus tax in 2026.

On top of either comes the GESY health contribution of 2.65% of pension income, capped at €180,000 of income a year.

The State Pension and personal pensions. Article 20 speaks of a pension for services rendered, which fits a workplace pension. Neither it nor the Tax Department's guide to the tax return, which calls the line simply "foreign pensions", says how a foreign state pension or a personal pension you paid into yourself is treated. A State Pension on its own matters little: it sits inside the €22,000 the bands leave tax-free. It matters once it comes on top of other pensions. Ask the Tax Department or an adviser which line each pension goes on before your first return.

Who counts as resident. The simple route is more than 183 days in Cyprus in a calendar year. The 60-day route needs at least 60 days on the island, a home in Cyprus, owned or rented, a business, a job or a directorship of a Cyprus company that is not ended during the year, and no more than 183 days in any other single country. For a retiree with no business or job in Cyprus, that means more than 183 days.

As a Cyprus tax resident with a pension you file a return every year; who must file and by when is in the same 2026 tax article.

The same pension in both countries: three examples

The examples assume one pension and no other income; the two larger ones are workplace pensions. On the UK side that means income tax at the 2026-27 rates for England, Wales and Northern Ireland, with the standard £12,570 Personal Allowance; on the Cyprus side, the 5% or the bands, whichever is lower, plus GESY. Pounds are converted at the ECB reference rate of 3 November 2026, €1 = £0.83358.

Plus means Cyprus costs more a year, minus that it costs less.

The first row is the one to notice. A pension the size of the State Pension (the full new State Pension is £241.30 a week, about £12,548 a year) pays no income tax in either country, and Cyprus adds the 2.65% contribution. The UK keeps it that way: for the three tax years from 6 April 2027 a Pension Tax Allowance, announced at the 2025 Budget, spares pensioners whose total income is no more than the full new State Pension from paying small amounts of income tax; it tapers away above that.

The gap opens with a workplace pension on top. Scotland has its own income tax bands; the UK column does not apply there.

What the UK keeps: inheritance tax for up to 10 years

Since 6 April 2025 UK inheritance tax turns, for most people, on years of residence rather than on domicile. You are a long-term UK resident if you were UK tax resident for 10 years in a row, or for 10 of the previous 20 tax years. A long-term resident's worldwide assets are in scope, a house in Paphos included.

Leaving does not end that at once. Long-term residence carries on after you go:

What is at stake during those years: inheritance tax at 40% on the estate above £325,000, a threshold that can rise to £500,000 if the home goes to children or grandchildren; what is left to a spouse or civil partner is normally exempt. From 6 April 2027 most unused pension funds and pension death benefits are added to the estate, and the personal representatives are liable to report and pay the tax, and, when certain conditions are met, they can have the scheme pay it out of the fund. The measure is already law (Finance Act 2026); the Budget of 28 October 2026 announced minor technical amendments to it.

Cyprus has had no inheritance tax since 1 January 2000. Heirs pay no inheritance tax, resident or not. For someone who spent their working life in the UK, though, that zero replaces the UK's 40% only once the long-term residence years have run out, and even then only for assets outside the UK. A UK house, or sterling in a UK bank account, stays within UK inheritance tax whoever owns it and wherever they live.

If you keep your UK home and let it

Rent from a house in the UK stays taxable in the UK: Article 6 of the treaty lets the country where the property is tax its income. As a Cyprus resident you declare it in Cyprus too, and Cyprus credits the UK tax, up to the Cyprus tax on that income (Article 22).

From 6 April 2027 UK income tax on property income is set to rise to 24% at the basic rate, 44% at the higher rate and 49% at the additional rate: announced in the Budget of 28 October 2026, to be legislated in the next Finance Bill.

UK and Cyprus taxes side by side

Before you move: the order of things

1. 01Count your UK years. The number of tax years you were UK-resident in the last 20 tells you how long UK inheritance tax will follow you.
2. 02Sort your pensions into three. State Pension, workplace and private, government service. Only the third stays taxed in the UK.
3. 03Plan your days. Without a business or a job in Cyprus, residence means more than 183 days a year on the island.
4. 04Keep tax residence and the right to live in Cyprus apart. They are separate questions. Buying property does not in itself give a residence status; the conditions are a matter for an immigration lawyer.
5. 05Choose 5% or the bands in your first Cyprus return, and check the choice again every year.
6. 06Have the numbers worked out before the first pension payment after the move by an adviser who knows both systems. Domicile history, the mix of pensions and how you draw them move the result more than any rate in this article.

These are rules, not a calculation of your position. How we check the figures in our articles is on our fact-checking page.

If you are looking at Paphos

What a move costs on the property side is in the costs of buying a new build, and what you can borrow at retirement age in Cyprus mortgages for non-residents. Homes available now, each with its price, are in the catalogue: new-build apartments in Paphos and villas and bungalows. How the areas of Paphos differ is on our areas page.