2019 Guernsey Budget Update
The States of Guernsey published their 2019 Budget on 9 October 2018.
The Policy & Resources Committee stated that they had been able to produce a fully balanced Budget for the second year in a row and that Guernsey’s public finances have stabilised and improved whilst other jurisdictions continue to struggle.
The main highlights are as follows:
Extension of 10% intermediate rate
The 10% intermediate rate has been widened on a number of occasions since 2012. With effect from 2019 it has been recommended to bring the following within the scope of the company intermediate income tax rate:
- Income from the regulated activity of operating an investment exchange; and
- Income from compliance and other related activities provided to regulated financial services businesses (such as corporate governance, risk management and compliance with the regulatory framework).
Preventing dual residence of companies
A company may be dual tax resident, for example, if it is tax resident in the jurisdiction where it is incorporated and also the jurisdiction where it is managed and controlled. This can lead to tax disadvantages. There has been a concern that despite the ‘tie breaker’ clause within the UK-Guernsey Double Tax Arrangement, HMRC may consider some Guernsey companies to be still dual resident in the UK.
Therefore domestic legislation is to be clarified to make it explicit that with effect from 1 January 2019, a company which is treated as non-resident under the terms of a double tax arrangement with a country or territory where the highest rate at which any company may be charged to tax is 10% or higher will not be considered tax resident in Guernsey for domestic tax purposes.
Some amendments to the anti-avoidance provisions will also be required to ensure domestic tax revenues are protected.
Tax on Real Property (TRP)
Domestic and land tariffs are to be increased by 10%. Also increased TRP tariffs are to be introduced in phases starting from 2019 for domestic properties with a TRP rating of 200 and above.
Commercial tariffs are to be increased by 5%.
Two new TRP commercial property categories entitled “Office and ancillary accommodation (accountancy services)” and “Office and ancillary accommodation (Non-Regulated Financial Services Businesses)” are to be introduced with a TRP rate set at the same level as that for “Office and ancillary accommodation (regulated finance industries)”. This will result in rates charged to these businesses increasing by 200%.
A 4.5% increase in the personal allowance (from £10,500 to £11,000) and the supplementary allowances is proposed.
The withdrawal of personal allowances (including mortgage interest relief and pension scheme contributions) for higher earners is being continued. From 1 January 2019, the withdrawal threshold is lowered from the Upper Earnings Limited on Social Security contributions (£142,896 in 2018) to £100,000. The withdrawal rate will, however, be decelerated to a rate of £1 for every £5 that a person’s income exceeds the withdrawal threshold, to alleviate the impact of marginal rates (currently the rate is £1 for every £3).
Income Tax Cap
Since 2008 there has been a provision in the income tax legislation enabling an individual’s income tax liability to be capped. Income arising from the ownership of land and buildings (taxable at 20%) is excluded from the calculation of an individual’s income for the purposes of the cap.
It is proposed that the caps are increased from 2019 from £110,000 to £130,000 (non-Guernsey source income) and from £220,000 to £260,000 (worldwide income). It is also proposed that income from land and buildings in Guernsey will not be excluded from the tax cap, when the income is derived from an exempt body.
A lower tax cap of £50,000 is available to new residents of Guernsey who have paid a minimum of £50,000 document duty on the purchase of a property, where the purchase has taken place within six months prior to, or six months after, their first arrival in Guernsey. The time limit for this condition is now being extended to twelve months.
Introduction of substance requirements for companies resident in Guernsey
The income tax law is to be amended to provide the ability to make Regulations requiring companies carrying on or undertaking relevant and other specified activities to have a substantive presence in Guernsey by meeting ‘substance requirements’. The proposals are being introduced in response to concerns raised by the EU Code of Conduct Group and will demonstrate Guernsey’s continued commitment to maintaining Guernsey’s reputation as well-regulated, transparent and co-operative jurisdiction.
The proposals will require companies that are resident in Guernsey and engaged in key activities identified by the EU to demonstrate as part of their annual tax return for accounting periods commencing after 31 December 2018 that they meet minimum substance requirements.
Miscellaneous Income Tax Matters
- A number of amendments have been proposed on aspects of pension provision that either simplify/clarify existing arrangements, remove inequalities, or are necessary to protect income tax revenues.
- From 2019 mortgage interest relief is not available if the loan is from a trust, such as a retirement annuity trust scheme (“RATS”).
- The Income Tax Law is to be amended such that relief for the underlying tax suffered by a company flows through to the beneficial owner on distribution, if the company is either incorporated or controlled in Guernsey. This will re-instate a longstanding practice that was removed in November 2015 due to the UK’s interpretation of the UK-Guernsey Double Taxation Arrangement.
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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