Guernsey: Taxing Times For Non-Resident Members Of Guernsey Section 150 Occupational Pension Schemes

With effect from 1 January 2015, The Income Tax (Guernsey) Law, 1975 was amended so that non-Guernsey residents will now be taxed on their pension benefits paid from an occupational pension scheme approved under section 150 of the Law, irrespective of whether they have performed services in Guernsey or not.

Prior to 1 January 2015, any pension benefits paid from a section 150 scheme were only treated as income arising or accruing from a source in Guernsey if the services in respect of which the pension or annuity was payable were performed in Guernsey. If the services were performed wholly outside Guernsey, that pension or annuity was not deemed Guernsey source income and did not attract a charge to Guernsey tax.

From 1 January 2015 any annuity or pension payable out of or under the provisions of a section 150 scheme is treated as income arising or accruing from a source in Guernsey.

The elimination of the differential tax treatment between Guernsey resident and non-Guernsey resident members of section 150 schemes appears to have been driven by the changes made by HMRC to the rules and regulations governing Qualifying Recognised Overseas Pension Schemes in 2012 and the subsequent difficulty faced by pan-island section 150 schemes in accepting transfers from UK registered pension schemes.

The changes to the Law will enable pan-island section 150 schemes to once again 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.

However 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. Trustees and administrators of such schemes should now be reviewing the resident status of their members in order to understand what the consequences are.

Trustees and administrators should also bear in mind that the Law provides that where the person entitled to the annuity or pension is non-Guernsey resident the trustees or other persons having the management of the scheme are charged with tax on behalf of the non-resident person.