CHIEF Minister Lyndon Trott today signed an agreement with the United Kingdom that will modify existing double taxation rules. This means that in the near future pensions, other than those for government service, will be taxed in the jurisdiction where the pensioner lives, and not where the pension is paid from.

Deputy Trott said: ‘The new agreement will bring tangible benefits for residents of Guernsey. When the new provisions are in place, the revision to the Double Tax Agreement (DTA) between the UK and Guernsey means that many Guernsey residents who have not previously been able to take advantage of transfer arrangements for pensions that apply in the UK will be entitled to relief from UK tax. Pensions, other than those for government service, paid from the UK to residents of Guernsey will only be taxed in Guernsey and not in the UK. Not only is this good for people with pensions, both now and in the future, it also means that Guernsey’s tax collections benefit, meaning that revenue will increase as well.’

It has been estimated that the additional tax payable to Guernsey could increase by as much as £3m per year. This is one benefit of the package of agreements that was signed in London today, which includes a Tax Information Exchange Agreement (known as a TIEA). In addition to providing economic benefits for Guernsey residents, the package that was agreed also means that the UK and Guernsey will, on request, exchange bank and other information relating to both criminal and civil tax matters. This will provide a further demonstration of Guernsey’s transparency and robustness as an international finance centre.

Deputy Trott said: ‘In addition to these benefits for Guernsey residents, the agreement will also provide relief from double taxation in other areas, and one of the other benefits of this is that Guernsey will also become more attractive for inward investment from other countries.

‘This is a real win-win for Guernsey – a win for the hard-working people and pensioners of Guernsey, and a win for our position as a leading international financial centre.’

1. In accordance with States Resolution 29 on the Policy and Resource Planning Report (Billet d’Etat No. XV of 2002), by unanimous vote of the Policy Council, the Chief Minister was authorised to sign the agreements on behalf of the States of Guernsey by the Policy Council’s Resolution of 19 January 2009.

2. In February 2002 Guernsey entered into political commitments to support an OECD tax initiative on transparency and information exchange through the negotiation of tax information exchange agreements with each of the OECD Member States.

3. Guernsey has now entered into 10 TIEAs; 8 with OECD countries (Denmark, Finland, Iceland, the Netherlands, Norway, Sweden, the UK and the USA) and 2 with non OECD jurisdictions (the Faroes and Greenland).

4. The States of Guernsey enters into a tax information exchange agreement (TIEA) with the UK together with an agreement amending the existing UK/Guernsey tax arrangement (the 1952 Arrangement).

5. One of the economic benefits that will arise to Guernsey as a consequence of the signing of this TIEA is an agreement, by the UK, to revise the Double Tax Agreement ("DTA") between the UK and Guernsey in relation to the taxation of pensions. Currently, if a Guernsey resident receives a pension from the UK, that pension will generally be liable to tax in the UK. This means that Guernsey residents in receipt of UK pensions not only have to deal with the Guernsey Income Tax Office but also HM Revenue & Customs in the UK. In addition, although credit would be available for the UK tax paid, when the pensioner’s Guernsey tax liability is calculated, it may be that, overall, the pensioner pays tax at a rate higher than 20%, i.e. more than had the pension only been taxed in Guernsey. The proposed revision to the DTA means the UK has agreed that, in future, Guernsey residents will not have to pay UK tax on UK pensions that do not relate to government service. Those pensions will only be taxed in Guernsey. Clearly this will have benefits for Guernsey’s tax collections and revenue. In return, Guernsey has agreed that it will not seek to tax a UK resident who receives a pension from Guernsey. For example, at present, someone who used to work in Guernsey and retires to the UK may receive a Guernsey pension from a previous employer and that would suffer Guernsey tax at 20%. The UK resident pensioner then has to make a claim to the Guernsey Tax Office for a form of relief (based on their worldwide income) which is both an administrative burden for the pensioner concerned and also for the Tax Office. Whilst this concession will mean that there will be a reduction in the island’s tax take, it is estimated that the amount will be very modest in comparison to the tax which would be gained by not having to give credit for UK tax where Guernsey residents receive UK pensions.

6. In addition to the changes to the tax treatment of pensions, the agreement amending the 1952 Arrangement provides for a mechanism to agree adjustments to the taxable profits of associated entities. The wording is similar to that included in agreements that Guernsey has recently entered into with the Netherlands and the Nordic countries.

7. The date when these new provisions on the taxation of pensions take effect would depend on when the UK and Guernsey are able to complete the necessary legal requirements, to bring the amendments to the DTA into effect. The States of Guernsey will make further announcements on when these provisions will take effect from in due course.

Contact information

James Falla, for Policy Council