Tax benefits for new Guernsey residents

UNDER OFFER

Les Tilleuls £1,100,000

A lovely bright detached home in a quiet residential area of St Peter Port.

A lovely bright detached home located on the outskirts of St Peter Port in a quiet residential area and only a 10 minute walk from Town’s shops and restaurants. Les Tilleuls offers 3 double bedrooms, a good sized sitting room and formal dining room however there is still excellent scope to extend and develop further if required. The property enjoys a sheltered south and west facing garden, garage and parking for numerous cars. A lovely home in a convenient location.

Property details

Sitting room, dining room, kitchen/breakfast room, conservatory, bedroom 1 with dressing room and en suite shower room, bathroom, shower room, utility. Garage, parking and gardens.

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Pen-Y-Bryn £1,750,000

A smart renovated Victorian villa.

A smart renovated Victorian villa registered on Part A of the Open Market. The property offers 5 double bedrooms, an elegant sitting room and excellent kitchen/dining/living room space, parking on site for 5 cars and a small low maintenance garden. Plans have been passed to extend and create further bedrooms. Pen-Y-Bryn also benefits from income derived from the rear car park which is currently achieving in the region of £32,000pa.

Property details

Sitting room, living/dining room, kitchen, bedroom 1 with en suite bathroom and dressing room, 4 further bedrooms, bathroom, shower room, utility. Garage and small garden. Land area (currently car park) providing income.

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Tax benefits for new Guernsey residents

by André Trebert, Executive Director BDO Limited

Guernsey offers a favourable tax regime for residents and businesses. As a British Crown Dependency, the island has developed its own competitive and well-established taxation regime that remains compliant with standards for tax transparency established by the Organisation for Economic Cooperation and Development (OECD). There are several attractive features of the Guernsey tax regime, designed to attract new residents to the Island. In addition to this, the rate of income tax applied has remained constant at 20% for many years. There is no capital gains tax, inheritance tax, wealth tax, gift tax, VAT or GST payable in Guernsey. Also, there is no minimum tax contribution required to become a Guernsey resident.

Tax Residence

A Guernsey tax year is a calendar year and tax residence status is determined solely on the number of days spent in the Island. An individual will be treated as “principally resident” in a calendar year if: a) He spends at least 182 days in

Guernsey during the year, or b) He spends at least 91 days in Guernsey during the year and, during the four preceding calendar years, he has spent at least 730 days in Guernsey. A principally resident individual is liable to pay tax in Guernsey on worldwide income. An individual can be treated as resident but not principally resident (commonly referred to as “Resident Only”) if he/she either: a) spends between 91 and 181 days in

Guernsey during a calendar year, or b) spends 35 days or more in Guernsey in a year and, during the four preceding years, he/she spent 365 days or more in Guernsey, and c) spends at least 91 days in one other country.

Tax Cap Arrangements

An individual resident in Guernsey can limit his/her annual tax liability on overseas income to £130,000 (note that this limit is set to increase to £150,000 in 2023). The limit can be extended by a further £130,000 (also set to increase to £150,000 in 2023), if appropriate, to include Guernsey source income. Individuals electing for the tax cap are not required to make an annual declaration of their personal income. For new arrivals to Guernsey, there is a cap of £50,000, limiting tax liability on Worldwide income in the year of arrival and the following three tax years. This benefit is available to any new resident that pays at least £50,000 of Document Duty on the purchases of a home listed on the Open Market Register within 12 months of permanent arrival in Guernsey. Note that a charge of £50,000 would be applied on consideration for a property purchase of approximately £1.32 million.

The Standard Charge

Individuals who spend less than half a year in Guernsey and are classed as “resident only”, can limit their annual tax liability on overseas income by electing to pay the Standard Charge of £30,000. This also covers Guernsey source income of up to £150,000.

Pre-arrival income and relief for overseas tax suffered

There is a favourable regime applied to income accumulated in overseas companies in the years prior to the arrival of the beneficial owner for residence in Guernsey. This income can be distributed within two years of the year of arrival. In addition, income arising to an overseas company, following the arrival of the beneficial owner in Guernsey, which has suffered overseas tax will attract double taxation relief in Guernsey on distribution to the beneficial owner, thereby reducing the shareholder’s personal Guernsey tax liability.

Independent Taxation

It is important to note that a major development in relation to Guernsey taxation is taking place from 2023. With effect from 1 January 2023, independent taxation is being introduced. This impacts on married couples and those in civil partnerships. Until now, couples have submitted an annual joint tax return and one person has been responsible for the annual declaration. From 2023, all Guernsey residents will be responsible for their own tax affairs and filing their own annual tax return. Under the current regime, the Tax Caps and Standard Charge apply jointly to a married couple as they do to a single person. Under independent taxation, each person in a married or civil relationship will only be able to limit their own tax liability and not that of their spouse.

Property related matters

The States has proposed a one year pause in the phased withdrawal of the tax relief on mortgage interest for a principal private residence, with the maximum deduction remaining at £3,500 in 2023 instead of being reduced to £2,000 as had previously been planned. For anyone paying mortgage interest on their home, this will mean up to £300 extra in their pocket (up to £600 for a couple). A further change proposed is the phasing out of mortgage interest relief against rental income from domestic let property. Relief will be phased out by reducing relief to 75% of the mortgage interest in 2023, 50% in 2024 and 25% in 2025. No relief will be available from 2026 onwards. There is also a proposed Document Duty increase of 2% on all residential property purchases which are not to be the purchaser’s principle private residence or that of a person associated with them (i.e. a family member). At a time when interest rates are exceptionally high, coupled with the phased withdrawal of mortgage interest relief for domestic let properties, it is not certain what impact this increased Document Duty will have on the housing market and the attractiveness of residential property in Guernsey as an investment. With a short supply of family homes on the island, the 2023 budget proposals include an incentive for ‘down-sizing’. For those meeting the qualifying criteria and conditions, the first £400,000 of a replacement principle private residence would not be subject to a Document Duty charge. This would reduce the Document Duty payable on the purchase of a property valued at over £400,000 by £10,875. This is only a short-term incentive that is expected to end on 31 December 2024.