The States of Guernsey have resolved to amend the Income Tax (Guernsey) Law, 1975 to ensure the taxation of pension benefits paid from occupational pension schemes approved under section 150 of the law, irrespective of where the services in respect of which those benefits were paid were performed. The change follows proposals put forward by Guernsey’s Treasury and Resources Department.
Under the current law any pension benefits paid from a section 150 scheme are only treated as income arising or accruing from a source in Guernsey if the services in respect of which the pension or annuity is payable were performed in Guernsey. If the services were performed wholly outside Guernsey, that pension or annuity would not be deemed Guernsey source income and would not attract a charge to Guernsey tax.
The proposal to eliminate this differential tax treatment appears to have been driven by the changes made in 2012 by Her Majesty’s Revenue and Customs to the rules and regulations governing Qualifying Recognised Overseas Pension Schemes. As a result of HMRC’s changes to the rules and regulations governing QROPS all section 150 schemes were removed from the QROPS list, published by HMRC, which in practice meant that no QROPS transfers could be made to section 150 schemes. The current position seems to be that a section 150 scheme capable of being a QROPS will be reinstated to HMRC’s QROPS list if the administrator of such section 150 scheme confirms to HMRC that the purpose of the scheme is to provide benefits for employees of an employer who only employs individuals in Guernsey.
This means that section 150 schemes with members employed in jurisdictions other than Guernsey cannot currently apply to be reinstated to HMRC’s QROPS list and therefore will, in practice, experience difficulty receiving pension transfers from the UK. There are many pan-island section 150 schemes that this affects, restricting new employees from transferring their UK pension rights to their new employer’s pension scheme.
The amendments to the law will mean that non-residents will be taxable on their pension benefits paid from a section 150 scheme irrespective of whether they have performed services in Guernsey or not. This will enable pan-island section 150 schemes to apply to be reinstated to HMRC’s QROPS list and thus enable them to receive transfer payments from UK registered pension schemes. This will enable new employees moving from the UK to the Islands to bring their UK pension rights with them.
In practice as Guernsey has signed Double Taxation Agreements with Jersey and the Isle of Man, members of pan-island schemes resident in Jersey or the Isle of Man should continue to be exempt from liability to Guernsey tax on their pension benefits.
Although this initiative will benefit employers with pension schemes operating across the Channel Islands there may well be some unintended consequences for those section 150 schemes with members resident and/or performing services in jurisdictions with which Guernsey does not have a Double Taxation Agreement. Administrators and sponsoring employers of such schemes should now be reviewing the resident status of their members in order to understand what the consequences may be.