The States of Guernsey have resolved to amend the Income Tax
(Guernsey) Law, 1975 to ensure the taxation of pension benefits
paid from occupational pension schemes approved under section 150
of the law, irrespective of where the services in respect of which
those benefits were paid were performed. The change follows
proposals put forward by Guernsey's Treasury and Resources
Under the current law any pension benefits paid from a section
150 scheme are only treated as income arising or accruing from a
source in Guernsey if the services in respect of which the pension
or annuity is payable were performed in Guernsey. If the services
were performed wholly outside Guernsey, that pension or annuity
would not be deemed Guernsey source income and would not attract a
charge to Guernsey tax.
The proposal to eliminate this differential tax treatment
appears to have been driven by the changes made in 2012 by Her
Majesty's Revenue and Customs to the rules and regulations
governing Qualifying Recognised Overseas Pension Schemes. As a
result of HMRC's changes to the rules and regulations governing
QROPS all section 150 schemes were removed from the QROPS list,
published by HMRC, which in practice meant that no QROPS transfers
could be made to section 150 schemes. The current position seems to
be that a section 150 scheme capable of being a QROPS will be
reinstated to HMRC's QROPS list if the administrator of such
section 150 scheme confirms to HMRC that the purpose of the scheme
is to provide benefits for employees of an employer who only
employs individuals in Guernsey.
This means that section 150 schemes with members employed in
jurisdictions other than Guernsey cannot currently apply to be
reinstated to HMRC's QROPS list and therefore will, in
practice, experience difficulty receiving pension transfers from
the UK. There are many pan-island section 150 schemes that this
affects, restricting new employees from transferring their UK
pension rights to their new employer's pension scheme.
The amendments to the law will mean that non-residents will be
taxable on their pension benefits paid from a section 150 scheme
irrespective of whether they have performed services in Guernsey or
not. This will enable pan-island section 150 schemes to apply to be
reinstated to HMRC's QROPS list and thus enable them to receive
transfer payments from UK registered pension schemes. This will
enable new employees moving from the UK to the Islands to bring
their UK pension rights with them.
In practice as Guernsey has signed Double Taxation Agreements
with Jersey and the Isle of Man, members of pan-island schemes
resident in Jersey or the Isle of Man should continue to be exempt
from liability to Guernsey tax on their pension benefits.
Although this initiative will benefit employers with pension
schemes operating across the Channel Islands there may well be some
unintended consequences for those section 150 schemes with members
resident and/ or performing services in jurisdictions with which
Guernsey does not have a Double Taxation Agreement. Administrators
and sponsoring employers of such schemes should now be reviewing
the resident status of their members in order to understand what
the consequences may be.
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.
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