UK tax regime could be better for Guernsey than first thought

Monday 14 December 2009

THE potential for UK high earners to look to Guernsey in the light of a top end income tax of 50% next April could be greater than first thought, one local banker believes.

What has not been widely understood is that the tax could affect more than those earning over the intended £150,000 threshold as it is levied on all taxable income and applies to all ‘relevant income’.

Even if an individual’s salary is £90,000, but other taxable benefits such as a company car or employee loan are factored in, the individual could be taxed at the top rate. The 50% tax rate is not just applicable to earned income, but to all taxable income, meaning that those who earn below the threshold may still be brought into the £150,000 bracket.

Managing director of Clydesdale Bank International, James Blower, said: “We have already started to see and hear of intermediaries as well as individuals looking to transfer capital to institutions, or work with structures here in Guernsey.

“The knowledge that people earning less than the £150,000 threshold may also be liable for the full 50% tax rate could lead to even further enquiries. It may ultimately also mean a wider range of earners doing business in Guernsey.

“Those of us based on the island are in a very positive position to absorb the fall out,” he added.

Relevant income can come from various sources such as salary, taxable profit from a trade, state or private pension, bank interest, share dividends, rental profit and redundancy payments.

Martin Smith, Head of Private Banking and Independent Financial Advice at Clydesdale and Yorkshire Bank in the UK, said: “Our advisers are working with customers to identify steps they could take as part of a tailored tax strategy, such as the transfer of assets, the use of trust and tax efficient investment vehicles and, for some, offshore planning.”

The 50% tax rate, announced in the last budget, comes into effect in April 2010 alongside other tax changes including the reduction of personal allowances on net income over £100,000 and the introduction of anti-forestalling rules. The current rate for taxable income of £150,000 is 40%.