11 March 2018
The States Assembly debated and approved Guernsey’s 2018 Budget proposals on 8 November 2017.
The Budget is stated as making the tax system more progressive, through the second phase of the withdrawal of income tax allowances for higher earners, which has enabled personal allowances for lower and middle earners to be increased above inflation. There is a first move towards independent taxation and a very attractive low tax cap for High Net Worth Individuals. In addition, various measures have been introduced to increase the tax contribution from businesses including a further extension to the 10% rate of tax.
The main highlights are as follows:
The intermediate rate of tax of 10% has been extended to apply to regulated businesses providing investment management services to individuals. It does not impact similar services provided to collective investment vehicles.
There has been a relatively large increase in TRP on domestic property of 10.2% and also the introduction of a new rate of TRP on commercial property occupied by businesses involved in the provision of legal services. The intention is to raise the level of TRP on such property to the same level as property occupied by regulated financial services businesses.
High Net Worth Taxpayers
A temporary tax cap of £50,000 per annum has been introduced for any new resident that has paid document duty of at least £50,000 on the purchase of an Open Market property. The purchase must have been made within a period of 6 months after taking up permanent residence on the island.
There has been an amendment to the Income Tax Law to ensure that Guernsey’s tax regime is competitive for retaining high net worth individuals.
Currently individuals who are in Guernsey for between 91 and 182 days each year are not regarded as principally resident and are able to restrict their annual tax liability by paying a Standard Charge of £30,000. If they spend more than 182 days a year in Guernsey they will not only become principally resident in that year, but also in the previous year. This look back has now been removed.
The States had already introduced a gradual withdrawal of personal allowances for taxpayers with income in excess of the social security upper earnings limit (£142,896 for 2018). Such taxpayers lose £1 of personal allowances for every £3 of income over the threshold. In a move towards “20 means 20” this withdrawal has now been extended to all other personal allowances including pension scheme contributions (above £1,000) and mortgage interest relief.
The annual personal allowance has increased by £500 to £10,500 for a single person.
Relief for pension contributions has been reduced from £50,000 to £35,000 per individual.
There is a first move towards independent taxation of married couples and couples in a civil partnership. From 2018 each individual’s personal income and entitlement to allowances is being considered separately, with full transferability of unused personal allowances between spouses and civil partners.
Investment Companies Held Within a Trust
Previously, income earned in an investment company held within a trust with a local resident settlor was treated as transparent for tax purposes. This anomaly has now been removed and from 2018 such income will only be taxable when it is distributed to the individual.
For more inforamtion please contact David Osborne, Head of Tax at Baker Tilly Channel Islands, on firstname.lastname@example.org or DL: +44 (0)1534 755 106
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