Guernsey Income Tax: A Guide for Residents
In Guernsey, filing your tax return is straightforward – there's no need to search for specific categories for your income. All residents, regardless of the source, must declare their entire income. Since Guernsey's tax system has broad categories, this essentially means any income you receive is taxable. However, the system is not without complications, in particular when moving to and from the Bailiwick and professional advice is recommended. Guernsey only has a limited number of Double Tax Agreements in place and an individual could find themselves with tax both in the country where the income was sourced and in Guernsey if they do not plan carefully.
Capital Gains
Capital gains are not subject to Tax in Guernsey. Care should be taken to ensure the activity and any Gain is seen as Capital and not income. If investment or property activity is regular and there is doubt that you might be trading then the Revenue Service may seek to classify the gains as income, not capital.
The Revenue Service may argue that gains have an income nature if there is an argument it has been trading even for example if buying, renovating and selling property regularly.
Other Income
1. INTEREST
Interest earned on all bank accounts worldwide is taxable at 20% for Guernsey residents. There is currently a £50 exemption per person. Interest income from UK National Savings Certificates is exempt from Guernsey Income Tax.
2. DIVIDENDS
Dividends should be declared at gross amount by the individual on his or her tax return. If tax has been deducted at source, the Tax amount will be credited against your overall Individual Tax liability. If the company itself suffered tax in Guernsey, a credit will be available for this also.
Where income is distributed from a Guernsey company the individual will always be assessed for 20% income tax, although the company will be responsible for meeting this liability on behalf of the Guernsey resident that the distribution is paid to. The Company issuing the dividend is obliged to issue a dividend certificate.
UK Dividends
The Individual should declare UK dividends on his or her tax return. Assuming the individual does not have a controlling interest in the UK company (then the UK Guernsey Double Taxation Agreement may apply).
Other Foreign Dividends
US and other foreign dividends should be declared gross, and unilateral tax relief will be given for foreign taxes deducted.
Unilateral relief is based on the marginal tax paid by a Guernsey resident. Typically, this will be around 18% given each individual is entitled to a personal allowance.
3. INVESTMENTS IN FUNDS
Income distributed in cash, or accumulated at the option of the investor, is taxable in the year the distribution is declared. If income is accumulated under the terms of the fund, rather than at the option of the investor, no tax charge will arise until the holding is disposed of. No other gains arising from investment funds will give rise to a tax liability unless they fall under the anti-avoidance provisions.
Generally, gains arising from investment funds are not taxable unless they fall under anti-avoidance provisions. These provisions were recently expanded, allowing the Director of Revenue to adjust transactions deemed to be avoiding, reducing, or deferring tax liabilities.
Where there is an investment in a zero coupon or deep discount bond, Tax will be charged only on the income when you dispose of the investment.
A life assurance policy held for at least ten years will not give rise to an income tax liability. Any full or partial surrenders before this point will lead to an assessment of the growth in the investment value. There is no liability on any death benefit paid.
Breaking the Mould Accounting is an ICAEW accounting business and can provide tax advice in Guernsey and the UK to ensure you are filing your Personal and business tax affairs accurately and claiming all eligible benefits. Our team of experienced tax professionals can provide personalized advice and handle your tax filings, giving you peace of mind.
