Pensions for non-residents in Guernsey explained
Please be advised that the information in this article regarding QNUPS and IHT is no longer accurate due to the recent changes announced in the UK Budget. Starting in April 2025, the regulations will have significant implications that may affect your understanding of these topics. We encourage you to stay informed and consult with a Soteria Trusts expert to navigate these changes effectively.
Guernsey has one of the most modern regulatory regimes that conform to international finance and pension standards. In 2001 and 2017, Guernsey became one of the first jurisdictions in the world to regulate pension providers and rules. These and other regulatory and taxation rules make Guernsey a jurisdiction that is a safe place to keep retirement funds. This article aims to broadly explain how taxes and pensions in Guernsey work and who can benefit from joining and contributing to a retirement plan there.
Where is Guernsey?
Guernsey is the second largest of the Channel Islands. It is located in Europe, approximately 48 kilometres west of Normandy, France, on the English Channel. Agriculture and farming were once important to Guernsey’s economy, with Guernsey having their own cow breed; however, now Guernsey is a world leader in providing safe and regulated financial services.
What currency is used in Guernsey?
Guernsey is a self-governing British Crown Dependency, and as such, Guernsey has a currency union with the United Kingdom. The home currency is the Guernsey pound, however, the Pound Sterling is acceptable and interchangeable everywhere on the island.
Guernsey Retirement Plans – An Overview of Pensions for non-residents in Guernsey
Guernsey has full Double Tax Agreements (DTA’s) in place with 15 countries and partial DTA’s with another 9. Amongst the 15 are its neighbours the Isle of Man and Jersey, as well as Luxembourg, Mauritius, Malta and the United Kingdom. The most notable countries with partial DTA’s are Australia, Denmark, Ireland, Japan, Norway, New Zealand and Sweden, which are working to extend this in the coming years.
Guernsey has some of the most modern and highly regulated pension rules in the world. This makes the island a particularly attractive place to set up a retirement plan, especially for those who are citizens of countries that already enjoy the benefits of a full DTA.
Other than approved Occupational Retirement Schemes (ORS), Retirement Annuity Trust Schemes (RATs) and Retirement Annuity Contract Schemes (RACs) are the two most popular types of personal pensions which are made available to residents and non-residents of Guernsey.
The primary benefit of contributions made into a RAC, whether they originate from an existing pension or via new contributions, is that they are free from taxation. As a consequence retirement plan benefits are paid to non-resident members gross and are not liable to Guernsey Income Tax. Guernsey residents don’t enjoy the same benefits as non-residents and pay income tax as normal.
Moreover, non-resident members of the Guernsey Retirement Plans can enjoy the annual tax-free lump sum limit for pension schemes withdrawals, which stands at £203,000.
Pensions for non-residents in Guernsey offer tax advantages, so you can enjoy your retirement knowing that your money worked for you as hard as you worked for your money.
Guernsey Income Tax Calculation on Pension
Personal tax liability in Guernsey depends on the individual’s residency. If you are a resident on the island, you are subject to pay tax at a rate of 20% on your worldwide income. In contrast, non-residents are only liable for income from activity or ownership within Guernsey. One point worthy of note is that the Guernsey tax year is aligned to the calendar year, unlike in other countries. When it comes to pensions and taxes the Guernsey government has been very commercial. Guernsey continues to attract overseas business by not levying any capital gains, inheritance, capital transfer and value-added (VAT) tax.
The Guernsey pensions that are made available to non-residents are especially tax-efficient for citizens of those countries who have Double Taxation Agreements in place. The DTAs ensure that double taxation of income, including that derived from pensions, is avoided between the said countries. Therefore, if your retirement plan’s location is Guernsey, it will be taxed subject to Guernsey Taxes only. As a result, Guernsey provides a tax-efficient environment in which the assets of the Retirement Plan grow free of taxation and, on drawdown, are paid to scheme members gross.
Guernsey Qualifying Non-UK Pension Schemes (QNUPS)
Soteria Trusts has developed a Defined Contribution Retirement Benefit Plan written under Contract and approved by the Guernsey Income Tax Authority under section 157A (2) of the Income Tax (Guernsey) Law 1975. It is also classed as the Retirement Annuity Contract in Guernsey.
The Soteria Guernsey Retirement Plan meets the requirements of the UK Tax Authority, and by doing so, becomes a Qualifying Non-UK Pension Plan (QNUPS). This classification means that the pension and all of the assets which sit within it are outside a member’s estate on death and is not assessed for Inheritance Tax (IHT), a benefit that is of significance for both the UK and non-UK nationals.
The Soteria Plan is therefore tax-efficient for Income Tax reasons before death, for Capital Gains Tax (CGT) reasons during the period that assets are held within the pension, and for inheritance tax purposes (IHT) post-death. Benefits from this plan can be drawn from the age of 55, and can be in the form of a tax-free amount of up to 30% of the total fund value with the residual used to provide income up to when a members death occurs.
It is these tax efficiencies and the accessibility rules that make the Guernsey Retirement Annuity Contract an excellent option for retirement income for UK Nationals, whether they are resident or not, as well as for any non-UK Nationals who have assets sited in the UK, and which are valued above the Nil Rate Bands.
