The Cypriot government has recently implemented significant amendments to its Capital Gains Law, a strategic initiative designed to revitalise the property market and strengthen the nation's financial structure. These comprehensive changes, which encompass property sales, exchanges, and share transactions, introduce substantially higher tax-free thresholds and expand the reach of current exemptions. The ultimate goal is to bolster the island's economic competitiveness and refine the tax collection process.
A central aspect of these legislative updates involves increasing the tax-free allowances for various property-related transactions. For general sales of property and shares, the exemption limit has been elevated from the previous £10,000 to €30,000, providing individuals and businesses with a more considerable financial cushion. Furthermore, farmers selling agricultural land will now benefit from a considerably enhanced exemption of €50,000, a notable increase from the prior £15,000. Most significantly, the tax-free allowance for profits from selling a primary residence has been tripled, rising from £50,000 to an impressive €150,000.
Beyond these direct increases, the government has also extended tax relief to property exchange arrangements, a move anticipated to facilitate smoother property transactions. Previously, exemptions were primarily focused on outright sales. Now, individuals who choose to exchange properties will not incur capital gains tax at the moment of the exchange itself. Instead, the tax liability will be postponed until they acquire their new property, at which point they will qualify for the same favourable tax exemptions governing property exchanges. This adjustment is expected to stimulate a more dynamic property market by removing immediate tax deterrents for exchanges.
A crucial element of the revised legislation clarifies that these exemptions are cumulative throughout a taxpayer's lifetime, rather than being applied per transaction. This means that utilising a general property or share sale exemption will subsequently reduce the available exemption for a primary residence sale from €150,000 to €120,000. This lifetime cap ensures a balanced distribution of tax benefits across different transaction types. The existing tax exemptions for primary residences are scheduled to remain in effect until 2030, offering a sustained incentive for homeowners.
In a related development aimed at assisting homeowners facing financial hardship, the value of a primary residence considered for tax exemptions concerning loan restructuring has also been recalibrated. The ceiling for such exemptions has been raised from €350,000 to €450,000. This measure specifically targets individuals whose primary residence loans were classified as non-performing as of December 31, 2020, providing them with enhanced tax relief during loan restructuring processes.
The overarching objective of these comprehensive reforms, as stated by government officials, is to foster a more competitive business environment, solidify the nation's tax framework, and ultimately improve the efficiency of tax collection. By offering greater financial relief and simplifying the tax implications of property transactions, Cyprus aims to attract further investment and stimulate economic activity within its crucial real estate sector. Property owners, both current and prospective, are expected to derive substantial benefits from these changes, with increased tax-free allowances and expanded exemption opportunities presenting tangible financial advantages.