Guernsey: It’s Not Just 20%!

Last Updated: 21 July 2010
Article by Mark Watson

Most Read Contributor in Guernsey, September 2018

Originally published in the Guernsey Wealth Management Supplement from Taxation Magazine, June 2010

Mark Watson, Tax Director at PricewaterhousCoopers and leader of the tax practice in Guernsey, compares and contrasts personal tax rates in Guernsey, Jersey, and the Isle of Man.

Current and feared future changes to UK tax have seen an increasing number of High Net Wealth (HNW) individuals look to relocate to the Crown Dependencies of Guernsey, Isle of Man and Jersey ('the Islands'), as well as other more tax-favourable territories around the world. At first glance the maximum personal tax rate for individuals of 20% in all three jurisdictions looks attractive; however the 20% rate can be dramatically reduced if tax caps, or in the case of Jersey the high value residency rules, are satisfied. The lack of capital gains taxes and inheritance taxes enhances the overall attractiveness of the Islands.

Tax is of course, not the only factor to be taken into account by HNW individuals looking to leave the UK. Considerations such as schooling, housing and the way of life also have a major role to play before a decision can be made. It is unusual to complete such an analysis and not conclude that at least one of the Islands stacks up as a very attractive proposition. In this article, though, I will provide you with the facts on the more technical key considerations around tax, housing and work permits.

Key Points

  • Housing and work permit rules must be considered along with tax.
  • Tax caps can make a significant difference to ultimate liability.
  • Advance tax planning can considerably improve the position.
  • Tax may be the trigger, but is unlikely to determine the ultimate destination.

Housing and Work Permits

A review of the tax regime needs to be complemented by looking at the housing and work permit rules. All of the Islands have implemented legislation to control population growth. The laws impact through housing licences or work permits. A summary of the rules for each Island is provided below.

Guernsey

Guernsey has two housing markets, the Local Market and the Open Market. Local Market housing is available to residents born on the island and to employees of companies where a skill shortage has been identified in the island. A company bringing an employee to Guernsey will obtain a licence for the employee for a specified number of years. These licences are issued by the Department of Housing and require completion of an application process. Open Market housing is available to everyone. On the purchase of an Open Market house, an individual is able to obtain a licence to reside on the Island for as long as they own the house.

Jersey

Jersey has a special regime applying to HNW individuals who wish to move to the island. Th is is called the 'high value residency regime' and an individual's circumstances are measured against the following criteria:

  • contribution to tax revenues, with a minimum expected tax contribution of £100,000;
  • business/social background of the applicant; and
  • the ability of the applicant to purchase or rent a property worth in excess of £1m.

There are also some circumstances under which anyone can purchase a house without needing to undergo the application process.

Isle of Man

The Isle of Man requires newcomers to the island, who come for work purposes, to have a work permit before commencing work, but does not have separate housing markets.

Who is Resident?

For the purposes of this article, the assumption is that an individual will become 'principally resident' in Guernsey, 'resident and ordinarily resident' in Jersey, or 'resident' in the Isle of Man. Residency is determined by set criteria which differ between islands. The residence rules for each island are summarised below:

Guernsey

Guernsey operates a system of day counting in order to determine whether someone is tax resident. There are three categories of residence: resident only, solely resident and principally resident. A person becomes principally resident if they spend over 182 days in Guernsey; OR 91 days in Guernsey in a tax year when over the preceding four years they have spent a cumulative total of 730 days in Guernsey.

Jersey

An individual is resident in Jersey for tax purposes if they:

  • have available accommodation in the island and stay there at any point during the tax year:
  • are physically present in the Island for at least six months in a tax year; or
  • are physically present in Jersey on average three months or more per year over any four year period.

In calculating residence for tax purposes, days of arrival are included but days of departure are ignored. An individual is ordinarily resident in Jersey if they are habitually resident in the Island.

Isle of Man

The Isle of Man treats a person as resident when they have 'a view or intent of establishing residence' from the date of their arrival. However residence will be deemed should a person spend six months in the Isle of Man in one tax year. The Isle of Man will also operate the practice of treating a person as resident if they spend an average of 90 days per year in the Isle of Man over a four year period.

Tax and the Tax Cap

Tax Summary:

 

Guernsey

Jersey

Isle of Man

Tax Year

1 Jan - 31 Dec

1 Jan - 31 Dec

6 April - 5 April

Income Tax Rate

20%

20%

10% to £10,500; 20% thereafter

Taxable Base

Worldwide

Worldwide

Worldwide

The summary of tax rates and the tax base shown in Tax Summary above applies to principally resident individuals in Guernsey; to ordinarily resident individuals in Jersey, andresident individuals in the Isle of Man.However, the effective rate of tax payable by HNWindividuals may be significantly reduced through the taxcap, or in the case of Jersey a sliding scale applicable to someindividuals. This is a significant aspect of the tax system ofthe Islands as they seek to compete with each other for High Net Worth Individuals looking to emigrate offshore.

Guernsey

The tax cap limits the tax payable by a Guernsey resident individual is £100,000 in respect of income from the following sources:

  • non-Guernsey businesses;
  • non-Guernsey offi ces and employments;
  • ownership of non Guernsey land and buildings;
  • other non Guernsey source income;
  • Guernsey bank deposit interest Income; and
  • Guernsey Collective Investment Schemes which have been granted exempt tax status.

Individuals who derive the majority of their income in Guernsey may elect for a tax cap of £200,000 on all income, whether arising in Guernsey or not. The two caps are mutually exclusive – individuals cannot avail themselves of both.

Jersey

Jersey does not operate a tax cap. For individuals who have been granted high value residency status, there are special rates of tax on non-Jersey source income as follows:

  • the first £1m is taxed at 20%;
  • income between £1m and £1.5m is taxed at 10%; and
  • income over £1.5m is taxed at 1%.

In looking at the £1m limit, Jersey income is included. Most individuals in this category are able to undertake pre-residence planning, which could restrict their Jersey tax liability to £100,000.

Isle of Man

The Isle of Man operates a tax cap which limits the tax payable for Isle of Man resident individuals to £115,000 per tax year. The tax cap applies to income from all sources.

Comparison

Worked Example:

The calculation in Worked Example above assumes the following facts for a married individual who is principally resident in Guernsey, or ordinarily resident in Jersey, or resident in the Isle of Man, with the following income:

  • domestic employment income of £400,000;
  • domestic investment income of £175,000;
  • UK investment income of £2,000,000

For the purposes of the example, double tax relief has been ignored.

Clearly, the higher an individual's income, the lower the effective rate of tax they would suffer. The Isle of Man cap applies to all income and results in a significantly lower effective tax rate for high earners. In the case of Jersey, the benefit of the lower rates of tax would only be enjoyed where an individual has over £1,000,000 of income.

The tax cap in Guernsey and the sliding scale in Jersey can provide an opportunity to engage in tax planning, particularly around optimising the balance of income received from domestic and non-domestic sources. In the Isle of Man there is the opportunity for some tax cap planning around the assessment of married couples, especially where there is a significant disparity between the respective incomes of the spouses.

Other Factors

The examples above only consider direct taxes and ignore the costs of other taxes such as social security, Value Added Tax in the Isle of Man, and Goods and Services Tax in Jersey.

Guernsey does not have a Goods and Services tax regime. Clearly if tax was the only consideration then the total tax contribution borne by an individual would need to be taken into consideration. These other taxes will have an important impact on the effective rates of tax indicated above.

Conclusion

In my experience, while tax might have been a key driver in making the initial decision to leave the UK it is also critical to understand how each jurisdiction's regime will affect a client who relocates. As demonstrated in the example above, it is essential to take advice prior to relocating to the Islands, in order to ensure that the tax position is optimised.

Other decisions such as schooling, housing and the way of life in each island form the overriding basis of the decision on where to ultimately settle. These decisions are very important as the tax benefits of relocating will only be effective if residence in the UK is broken.

In this respect, there have been a number of tax cases recently that have sought to test whether residence has actually been moved to another territory. An unhappy relocation, resulting in too many return visits and an insufficiently clear 'break' with the UK, could be fatal to effective tax planning.

For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions