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A LOOK AT THE BENEFITS OF GUERNSEY’S TAX REGIME FOR RESIDENT INDIVIDUALS

BDO LIMITED

Guernsey offers a favourable tax regime for

many individuals and businesses. As a British

Crown Dependency the island has developed

its own competitive and well established

regime which complies with OECD standards

for transparency. In this case study Caley

Clarke from BDO demonstrates the extent of

the benefits available to individuals who are

Guernsey resident.

There are a number of attractive features of

the Guernsey tax regime, primary amongst

which is the rate of income tax for individuals,

charged at a maximum of 20%. There is no

capital gains tax, inheritance tax, wealth tax

or VAT payable in Guernsey. Also, there is no

minimum tax contribution required in order to

become a Guernsey resident.

For very high earning individuals tax may

be capped at £110,000 on overseas income

or £220,000 on worldwide income*. From

2018 there is also a new tax cap available of

£50,000* on worldwide income for individuals

moving to Guernsey and purchasing an open

market property valued at over £1,500,000

within six months of arrival. This cap is

available for the first four years of residence in

Guernsey.

With effect from 2017 tax allowances are

reduced for high earners in Guernsey. In

2017 it was just the personal allowance

that was restricted if assessable income

exceeded £138,684. However, from 2018 the

personal allowance, mortgage interest relief

and pension contribution relief could all be

restricted, by reference to a sliding scale,

once the level of income exceeds £142,896.

Also from 2018, the maximum contribution

paid into a pension, upon which tax relief

may be claimed, has reduced from £50,000

to £35,000. High earners will continue to

receive relief on a minimum of £1,000 of their

contributions even if all other allowances and

reliefs are restricted.

Shown opposite is a comparison of Guernsey

and UK tax for 2017 (2017/18 for UK) for a

single fictional individual with a salary and

bonus of £250,000, bank interest of £2,000,

UK dividend income of £6,000, a capital

gain in respect of a sale of a share portfolio

in Blue Chip securities of £100,000, pension

contributions of £50,000 and mortgage

interest of £8,000.

As shown, the overall tax payable is

substantially less in Guernsey than in the UK.

Even once further allowances are withdrawn

in 2018 the Guernsey tax payable on the

same income will still be less than half the UK

equivalent.

As mentioned above, another major tax

benefit of living in Guernsey is that there

are no inheritance or wealth taxes payable.

In contrast, the estates of individuals who

are domiciled in the UK could be subject to

inheritance tax on the whole estate of up

to 40%. With efficient tax planning, anyone

moving permanently to Guernsey, and

adopting a Guernsey domicile of choice, and

anyone already resident in Guernsey, could

reduce their UK inheritance tax exposure

on all assets other than UK residential

property (and with effect from April 2019 UK

commercial property).

Caley Clarke

Senior Tax Manager, BDO Limited

A LOOK AT THE BENEFITS OF GUERNSEY’S

TAX REGIME FOR RESIDENT INDIVIDUALS

* If any income is received from the ownership of land or buildings in Guernsey additional tax is payable on this income.

** If the balance of the mortgage is over £400,000 interest relief is apportioned accordingly. The amount of interest allowable is also reducing on a sliding scale each year.

From 2025 onwards tax relief due on a principal private residence will be completely removed.

Guernsey tax

Salary and bonus

£250,000

Bank interest

£2,000

UK dividends

£6,000

Capital gain

£0

Bank interest exemption

(£50)

Pension contribution

(£50,000)

Mortgage interest**

(£8,000)

Personal allowance

(£0)

Net income

£199,950

Guernsey tax

payable at 20%

£39,990

UK tax

Salary and bonus

£250,000

Less pension contribution

(restricted)

(£10,000)

Bank interest

£2,000

Dividends

£6,000

Capital gain

£100,000

less annual

exemption

of £11,300

Mortgage interest

(£0)

Personal allowance

(£0)

UK tax payable

Basic rate tax £33,500 at 20% £6,700

Higher rate tax £116,500 at 40% £46,600

Additional rate tax £90,000 at 45% £40,500

Additional rate tax £2,000 at

45%

£900

Nil rate £5,000 at 0%

£0

Additional rate tax £1,000 at

38.1%

£381

Capital gains tax £88,700 at

20%

£17,740

Total tax

£112,821

COOPER BROUARD

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