Pensioners in Guernsey urged to take advantage of new tax rules

Friday 15 January 2010

Pensioners in Guernsey are being urged to sign up to take advantage of new tax rules concerning pension payments from the UK.

Revisions to the existing double taxation arrangement with the UK were agreed last year and come into effect from 6 April 2010.

One of the effects is to make all pensions and annuities taxable only in the recipient’s country of residence, so a pension received by a Guernsey resident from a UK source would be taxable only in Guernsey. Currently UK tax is deducted at source and the Guernsey Tax Office gives the individual a credit in respect of that tax paid.

The Guernsey Tax Office is writing to all Guernsey residents who it understands are in receipt of a UK pension, advising them of the procedure they need to follow to claim exemption from UK tax.

They need to apply to Her Majesty’s Revenue and Customs in the UK for a form – or download from its website (www.hmrc.gov.uk/cnr/dtindividual.pdf) – which should be completed and sent to the Guernsey Tax Office. Once certified, the Tax Office will return the form to the individual, who should then send it back to HMRC.

Once HMRC processes the form, all UK pensions should be paid gross to Guernsey residents. The income will be liable to tax in Guernsey.

If someone does not complete the form, tax will continue to be deducted in the UK but no tax relief will be granted in Guernsey in respect of that tax paid, so effectively the individual will be taxed twice. Anybody completing the form after the commencement date of 6 April would have to apply to HMRC for a refund of UK tax paid back to that date.

The reverse agreement applies for UK residents receiving Guernsey-based pensions.

It is estimated that about 650 people in Guernsey will be affected by the change.

Rob Gray, Director of Income Tax, said: ‘Tax previously paid to the UK Revenue will now be paid to us and though we will lose some revenue from pensions paid to UK residents, we do expect to be the net beneficiary, though we’re not yet clear how much tax revenue will be involved.’