**NICOSIA** – In a strategic move designed to invigorate its property sector and enhance its fiscal architecture, the Cypriot government has recently enacted substantial amendments to the Capital Gains Law. These sweeping changes, impacting property sales, exchanges, and even share transactions, introduce significantly elevated tax-free thresholds and broaden the scope of existing exemptions, aiming to fortify the island's economic competitiveness and refine tax collection mechanisms.
The core of these legislative adjustments lies in the upward revision of tax-free allowances for various property-related transactions. For general sales of property and shares, the exemption limit has been raised from the previous £10,000 to €30,000, offering a more substantial buffer for individuals and businesses. Furthermore, farmers engaging in the sale of agricultural land will now benefit from a considerably enhanced exemption of €50,000, a significant leap from the prior £15,000. Perhaps most notably, the tax-free allowance for the profit derived from the sale of a primary residence has been tripled, escalating 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 that is anticipated to facilitate more fluid property transactions. Previously, exemptions were primarily focused on outright sales. Now, individuals who opt to exchange properties will not be liable for capital gains tax at the point of the exchange itself. Instead, the tax liability will be deferred until they acquire the new property, at which point they will be eligible for the same favourable tax exemptions that govern property exchanges. This adjustment is poised to encourage a more dynamic property market by removing immediate tax disincentives for exchanges.
A crucial element of the revised legislation is the clarification that these exemptions are cumulative over a taxpayer's lifetime, rather than being applied on a per-transaction basis. This means that while a general property or share sale exemption can be utilised, it will consequently reduce the available exemption for a primary residence sale from €150,000 to €120,000. This lifetime cap ensures a balanced application of the tax benefits across different types of transactions. The existing tax exemptions pertaining to primary residences are slated to remain in effect until 2030, providing a long-term incentive for homeowners.
In a related development aimed at supporting homeowners facing financial difficulties, the value of a primary residence considered for tax exemptions related to 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, offering them enhanced tax relief when undergoing loan restructuring.
The overarching objective of these comprehensive reforms, as articulated by government officials, is to cultivate a more competitive business environment, solidify the nation's tax framework, and ultimately improve the efficiency of tax collection. By providing greater financial relief and simplifying the tax implications of property transactions, Cyprus aims to attract further investment and stimulate economic activity within its vital real estate sector. Property owners, both current and prospective, are expected to be significant beneficiaries of these changes, with enhanced tax-free allowances and expanded exemption opportunities offering tangible financial advantages.