Guernsey Personal Income Tax

Individuals who are solely resident or principally resident in Guernsey are subject to Guernsey income tax on world wide income. Individuals who are resident but not princi­pally or solely resident in Guernsey may instead choose to pay the standard charge (see Standard charge).

Individuals are considered resident in Guernsey in any fiscal year, which is the calendar year, if they satisfy either of the fol­lowing conditions:

  • They spend 91 days or more in Guernsey in that year.
  • They spend 35 days or more in Guernsey in that year and have spent 365 days or more in Guernsey in the preceding four years.

Individuals are treated as solely resident if, in a fiscal year, they are resident in Guernsey and not resident elsewhere. Individuals are considered resident elsewhere if they spend 91 or more days in that place.

Individuals are considered principally resident in Guernsey if any of the following conditions are satisfied:

  • In a fiscal year, they spend 182 days or more in Guernsey.
  • In a fiscal year, they spend 91 days or more in Guernsey, and during the four preceding years they spent 730 days or more in Guernsey.
  • They take up permanent residence in Guernsey.

Married persons are taxed jointly on all types of income. Married persons may elect to be assessed separately, but separate assess­ment apportions the joint income tax liability according to the income of each spouse and does not generally change the total overall tax liability of married persons.

Income subject to tax

Employment income. Taxable employment income includes sala­ries, wages, bonuses, gratuities, benefits in kind, directors’ fees and pensions.

Wages, pensions and salaries paid by Guernsey-resident compa­nies to nonresident employees whose duties are carried on outside Guernsey are exempt from Guernsey income tax.

Benefits in kind are taxed as part of payroll and are subject to social security contributions and Employees Tax Instalment (ETI) payroll tax deductions (see Section D).

The tax-exempt limit for redundancy payments is GBP30,000. A payment instead of notice is not considered to be a termination payment and is fully taxable. The excess over the GBP30,000 exemption is subject to ETI scheme deductions (see Section D).

Benefits in kind. Benefits in kind paid to employees are assessed to income tax and social security, subject to a GBP450 annual exemption. The exemption does not apply to accommodation, share options or motor car benefits, which are fully taxed.

Various benefits are also exempt from tax, such as medical insur­ance, if the scheme is open to all employees.

All benefits paid for through “salary sacrifice” are chargeable to tax, regardless of whether the benefit would have been exempt.

Any discount on the market value at the grant of an employer-provided stock option is taxable in full in the year of the grant. If it is demonstrated that the option will never be exercised (for example, if the employee waives the option or the option lapses), the tax paid in the year of grant is refunded.

Self-employment and business income. All self-employed persons carrying on a trade, business or profession in Guernsey or partly in Guernsey are subject to income tax on their taxable income.

Taxable income consists of accounting profits, subject to certain adjustments.

Investment income. Dividends, interest, royalties and income from the rental of real property are included in taxable income and taxed at a rate of 20%. The first GBP50 of bank or savings inter­est for an individual is exempt from Guernsey income tax (dou­bled for married couples if each spouse receives interest).

A credit may be available with respect to tax paid at source in another jurisdiction.

Interest payable by Guernsey banks to nonresidents is exempt from Guernsey income tax.

Distributions from Guernsey companies. The standard tax rate for Guernsey companies is 0%. A higher rate of 20% applies to Guernsey property income, regulated utilities and, from 1 January 2016, the importation and/or supply of hydrocarbon oil or gas in Guernsey and large retail business carried on in Guernsey (if the retail company has a taxable profit of more than GBP500,000). An intermediate rate of 10% applies to income from banking business, domestic insurance business, fiduciary business, insurance intermediary business, insurance manager business, fund administration business and, from 1 January 2016, the provision of custody services. Guernsey-resident individuals are taxable at a rate of up to 20% on all distributions from Guernsey companies. A credit is given for tax suffered by the company.

Deemed distributions. The deemed distribution provisions were repealed, effective from 1 January 2013. However, the use of “pooled” income sources continues.

Effective from 1 January 2013, distributions to shareholders must initially be made from untaxed pools, before income that has been taxed. Capital gains are not taxed in Guernsey.

Loans from Guernsey companies to Guernsey-resident share­holders are taxable if the loan is made when the company has pooled profits that have suffered tax at a rate of less than 20%. They are taxable on the grossed-up amount of the loan when the loan is made.

Companies incorporated outside Guernsey are treated as resident in Guernsey if they are controlled in Guernsey. The Guernsey authorities interpret control to mean ultimate individual share­holder control.

Nonresident shareholders are not taxable on company distributions. Deductions

Personal deductions and allowances. Guernsey operates a sys­tem of personal allowances and deductions.

The main allowance is a personal allowance. For 2016, the fol­lowing are the amounts of the allowance.

                                                                     Single           Married

                                                                       GBP               GBP

Under 64 years of age                                  9,675              19,350

 

Either husband or wife aged 64 years

or over at beginning of tax year                       —               21,125
Aged 64 years or over at beginning

of tax year                                                    11,450            22,900

The married persons’ allowance is allocated to the husband, who is responsible for reporting both his and his wife’s income to the Income Tax Office. It is available only if both individuals are resident in Guernsey.

Interest paid on a mortgage on a Guernsey principal residence is deductible in the calculation of the annual tax liability, limited to the interest charged on the first GBP400,000 of the mortgage. This is subject to an interest cap of GBP13,000 for 2016 (doubled for married couples if each spouse is a borrower).

Deductible business expenses. To be deductible, expenses must be incurred wholly and exclusively for the purposes of the busi­ness. Depreciation is not deductible, but capital allowances may be claimed on the cost of plant and machinery. The rate of capital allowances is generally 20% of the reducing balance. Allowances are also granted for buildings.

Relief for losses. Business losses may be carried back one year and carried forward indefinitely if the business continues to oper­ate. Losses on property income may be carried forward to offset future income. No relief is provided for capital losses because no capital gains tax is charged.

Rates. Income is taxable at a flat rate of 20% after deduction of personal allowances and reliefs.

Tax cap. The tax payable on a Guernsey-resident individual’s income is restricted to an upper limit, or cap. Individuals may elect either of the following options for the payment of tax:

  • They may pay tax on non-Guernsey-source income restricted to GBP110,000, plus tax on Guernsey-source income (excluding Guernsey bank interest).
  • They may pay GBP220,000 tax on worldwide income, includ­ing Guernsey-source income.

Effective from 1 January 2016, a lower cap of GBP50,000 applies with respect to Alderney. This cap supersedes both caps mentioned in the first and second bullets above.

Income derived from Guernsey land and property is excluded from the tax cap.

If a married couple are taxed jointly, they are classed as one tax­payer. Consequently, only one cap applies per married couple.

Non-Guernsey-source income is any income derived from non-Guernsey sources, including income from the following:

  • A business not resident and not operating in Guernsey
  • An office (for example, director or trustee) or employment with entities not resident in Guernsey
  • Ownership of land and buildings outside Guernsey
  • Other sources not located in Guernsey

For purposes of the above rule, interest arising in Guernsey on money deposited with a licensed institution is considered to be non-Guernsey-source income.

Standard charge. The standard charge is GBP30,000. It applies to individuals who are resident but not solely or principally resident in Guernsey (see Who is liable). Individuals must either declare and pay tax on their worldwide income, or elect to pay the stan­dard charge.

After individuals pay the charge, they can make tax-free remit­tances to Guernsey. Guernsey-source income remains taxable on the individual, but the liability on the first GBP150,000 is deemed as being met by the standard charge payment. Individuals paying the standard charge are not entitled to claim any Guernsey personal allowances or reliefs. Guernsey-source bank interest is deemed to be a non-Guernsey source of income.

Like the tax cap, taxpayer refers generally to a married couple. Consequently, only one charge is payable by both spouses jointly.

Other taxes

Guernsey does not impose capital gains tax or inheritance tax. No other significant taxes are levied on individuals in Guernsey.

Social security

Contributions. Guernsey has a compulsory social security scheme. Three classes of social security exist.

Employed. Employers and employees under 65 years old must make contributions based on taxable earnings at the rates of 6.5% and 6%, respectively, with a monthly earnings limit of GBP11,466. The maximum annual contribution is GBP8,943 for employers and GBP8,256 for employees.

Self-employed. Self-employed individuals under 65 years old must pay contributions based on their self-employment income level, subject to an annual upper earnings limit of GBP137,592. The rate is 10.5%.

Non-employed. All insured persons who are not employed or self-employed are in the non-employed class, as well as all persons aged 65 and over, even if they are employed or self-employed.

The rate for non-employed contributions is 9.9% of income de­clared on the tax return, subject to a non-employed allowance of GBP7,336. Individuals aged 65 and over pay the health insurance contribution rate of 2.9% based on their taxable income, less the non-employed allowance. The upper earnings limit of GBP137,592 applies.

Totalization agreements. To provide relief from double social secu­rity taxes and to assure benefit coverage, Guernsey has entered into totalization agreements with the following jurisdictions.

Austria Italy New Zealand
Barbados Jamaica Portugal
Bermuda Japan Spain
Canada Jersey Sweden
Cyprus Korea (South) Switzerland
France Malta United Kingdom
Ireland Netherlands United States
Isle of Man    

 

Tax filing and payment procedures

All income is assessed on a current-year basis. The tax year runs from 1 January to 31 December.

Income tax is levied by assessment based on the taxpayer’s tax return. Tax is deducted from earned income of employed indi­viduals during the year through the ETI scheme. Employed indi­viduals make payments on account during the year through the ETI scheme and a final balancing payment or repayment may be due following the assessment.

All other taxpayers make two payments on account based on an estimated assessment issued in May of each year. The two equal tax installments are due on 30 June and 31 December of the tax year. A balancing payment or repayment is due following the issu­ance of a final assessment.

In general, a Guernsey resident making a payment of Guernsey income (excluding bank interest) to a person resident outside Guernsey is regarded as the agent of the nonresident. The agent may be assessed instead of the nonresident and, consequently, the agent may withhold income tax at a rate of 20% from the payment and remit it to the tax authorities. However, this rule does not apply if the recipient is resident in Jersey or the United Kingdom, receives the payment as business income and does not have a permanent establishment in Guernsey.

Double tax relief and tax treaties

Unilateral relief is available to prevent double tax being charged on income from a territory where there is no tax treaty in force.

Guernsey has entered into full or partial double tax treaties with several jurisdictions.

It has entered into full double tax treaties with the following jurisdictions.

Cyprus                      Liechtenstein                Qatar

Hong Kong              Luxembourg                 Seychelles

SAR                           Malta                             Singapore

Isle of Man              Mauritius                       United Kingdom

Jersey                        Monaco

It has entered into partial double tax treaties with the following jurisdictions.

Australia                   Greenland                     New Zealand

Denmark                  Iceland                          Norway

Faroe Islands           Ireland                           Poland

Finland                     Japan                             Sweden

Double tax treaty negotiations have been completed with Bahrain and Bermuda. They are underway with Gibraltar and the United Arab Emirates. In addition, discussions are ongoing regarding the possibility of double tax treaties with Estonia, Latvia, Saudi Arabia and Thailand. Negotiations on a revised double tax treaty with the United Kingdom began in 2016.

Guernsey has signed tax information exchange agreements (TIEAs) with 60 jurisdictions, including the United Kingdom and the United States. The TIEAs relate to the exchange of tax information. Under the TIEAs, each jurisdiction may request information from the other, principally to assess and enforce col­lection of tax.

Entry visas

Entry visas are not required of foreign nationals entering Guernsey directly from the European Union (EU).

Work permit — Right to Work document

Housing is restricted in Guernsey. Housing is divided into what is known as local market (LM) and open market (OM). Approximately 20,000 dwellings are in the LM and 2,000 are in the OM.

Anyone (subject to residence permits as described in Section H) may occupy an OM dwelling but, with the relatively short supply, the price of an OM dwelling is usually higher than that of a com­parable LM dwelling.

Occupation of LM property is restricted to locals and to persons granted licenses by the government. Licenses are difficult to obtain for non-Guernsey nationals and generally are granted to essentially employed persons whose necessary skill and experi­ence cannot be found locally.

Individuals may not be employed in Guernsey unless they have a Right to Work document, which is time-limited but may be subject to renewal. A Right to Work document is issued by the govern­ment housing department, showing that the department is satis­fied that the individual is legally residing in Guernsey. The penal­ties for being employed without a Right to Work document, or with an expired document, are severe.

Application for a Right to Work document can be made by the potential employer, and permission is granted by the States of Guernsey.

Residence permits

Persons who have the right to settle in the United Kingdom do not need a permit to reside in Guernsey. All other foreign nationals must apply to a British embassy or consulate for residence per­mits. After foreign nationals obtain a residence permit, they must apply to the States of Guernsey for a Right to Work document. No specific documentation is required in Guernsey.

In addition, non-EU nationals who require permission to settle in Guernsey may be employed only if their employers obtain per­mission from the Home Department.

Guernsey entry clearance includes a category for wealthy foreign investors who wish to make Guernsey their primary home. To qualify for this category, individuals must own and have at their disposal at all times a minimum of GBP1 million, GBP750,000 of which must be invested in a manner that benefits Guernsey (both of these thresholds are expected to increase shortly).

Family and personal considerations

Family members. If an individual is legally living in LM accom­modation, a spouse and any dependents may live with the indi­vidual and work under the householder’s LM license.

Marital property regime. Guernsey has a marital property regime under which all property acquired before or after marriage is considered to be the joint property of the spouses.

The joint property regime is mandatory and applies only to mar­ried couples who solemnize their marriage in Guernsey. Same-sex couples may not be legally married in Guernsey. The court also has jurisdiction to act if either of the spouses is domiciled in Guernsey, providing the marriage is recognized under Guernsey law and no other courts are involved. Marital domicile is not a recognized concept under Guernsey law.

On divorce, nullity or legal separation of a married couple, the court has the power to adjust the property rights. This intervention is not possible in the case of unmarried cohabitants whose rights are determined instead by reference to general property law.

Forced heirship. Inheritance has historically been split between matters of realty (generally buildings) and personality (everything else, including shares, cash and other assets).

If a married couple jointly buys Guernsey real property as joint tenants with right of survivorship, on the first death of either spouse, the property vests solely in the survivor.

Guernsey has introduced several new laws concerning inheri­tance, with the most radical changes relating to realty. These laws entered into force in 2012. Under prior law, on death, the spouse was entitled to a right of enjoyment over half of the property owned by the decedent. In addition, if the decedent left a will, the remaining realty could pass only to descendants, which included illegitimate issue from 2008 onwards. Effective from 2012, dece­dents who make a will can leave their estate to anyone they desire.

Scope also exists in a new law for family or dependents to apply for financial provision from the estate. For this purpose, family also includes civil partners, despite the absence of a civil partner­ship law in Guernsey.

Driver’s permits. Foreign nationals may not drive legally in Guernsey using their home country driver’s licenses.

Guernsey has driver’s license reciprocity with EU and European Economic Area (EEA) countries for all categories of permits. Other jurisdictions that have interchangeable car and motorcycle permits include Australia, Canada, the Hong Kong SAR, Japan, New Zealand, South Africa and Switzerland. On arrival in Guernsey, individuals with one of these licenses have a year to apply for a Guernsey license.

In all other circumstances, to obtain a Guernsey driver’s license, an applicant must take a practical test and a theoretical exam based on the highway codes.