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The UK and Cyprus have agreed to an amendment to the 2018 Double Taxation Convention in response to concerns by British nationals about one of its provisions in respect of government service pensions.

The amendment will allow individuals to choose which basis of taxation they want to apply to their government service pensions. This choice can be made from 1 January 2019 until 31 December 2024.

The pensions provision in the new Double Taxation Agreement with Cyprus mirrors the treatment in the majority of the UK’s agreements. The changes that have been agreed will introduce a period of transition that will enable existing pensioners to elect to remain within current arrangements for a period of five years.

UK Government service pensions are currently taxable only in the country in which the recipient is resident, but under the 2018 Convention they will be taxable only in the country which pays the pension.

The UK Revenues and Customs authority has published guidance showing how pensioners wishing to remain within the current arrangements can make a decision. The election will apply in the calendar year in which it is made and for future years until 2024. 

The transition period is for a maximum of five years to 31 December 2024. If an election is not made, then the arrangements under the 2018 Double Taxation Convention will apply, in which case government service pensions will be taxable only in the UK from 1 January 2019.

British High Commissioner Stephen Lillie and Finance Minister Harris Georgiades signed the amended protocol in Nicosia. According to Georgiades, the latest amendment of the agreement created a framework that facilitates further economic cooperation, fiscal stability and transparency in the relations of the two countries.