This Is Guernsey

By Graham Parrott

AS WE approach the end of the year and the countdown to zero-10 reaches zero, this is a time for most of us to count our blessings. The strategy for maintaining our international competitiveness is in place, seemingly without the need to resort to the lengths Jersey has to balance the books. We are lucky to live here and it would appear this can continue at little or no additional cost to the majority of islanders.

But while we breathe a collective sigh of relief, recent developments in the UK provide cause for concern and at the same time for some a source of potential opportunity.

In his recent pre-Budget speech, Chancellor Alastair Darling announced a number of measures which could affect us in the islands. The one that has created the greatest furore in the UK is the move to a flat-rate capital gains tax of 18%. The increase from what for many can be as little as an effective 10% has led to sustained and vocal opposition from business organisations.

We still await a decision as to whether the proposed change will be made and, if so, what will be done to address those concerns. For some, moving here will be an attractive option to avoid the higher liability.

Another significant series of measures trailed in the speech concerned ‘non doms’ - foreigners living in the UK temporarily. The very generous tax regime for those individuals has long made the country a tax haven, but I would never have expected them to have featured in the Sun newspaper. The secret is out.

Last week saw the publication of a UK consultation document on domicile and residence, ‘Paying a fairer share’. The first line of the document notes the need for the country to maintain its competitiveness and it goes on to seek views on how to implement a number of proposed changes affecting these individuals and also people not resident in the UK but who are frequent visitors there. Submissions must be made by 28 February. It will be interesting to see how the country addresses the question of who should pay for maintaining competitiveness.

Many of the proposed changes will have limited adverse impact locally, but the possibility of removing one anomaly, hinted at in the document, will be particularly relevant to Guernsey trustees.

Currently, for a UK resident non-dom, income and gains arising outside the country are taxable in the UK only to the extent the proceeds are remitted there, in itself a generous concession. However, as far as gains are concerned, these can be made within an offshore trust settled by a non-dom and not taxed, irrespective of whether the asset on which the gain is made is in the UK or the proceeds are remitted there.

It is likely that this anomaly will be removed, which means that non-doms with trusts in Guernsey will in future be taxed on UK gains as they arise within the trust. There are ways of mitigating this, but trustees should already be looking at what to do if the anticipated change is to be made. As with the capital gains change, this could cause some UK residents to move elsewhere.

Another important proposed change, which received less attention than it deserved when announced in the pre-Budget documentation and which was also referred to in the consultation paper, is the way days are counted for UK residence purposes. Currently, you or I (or anyone currently in the UK thinking of moving here) will be UK resident for tax purposes if we spend 183 days there in any one tax year (6 April to 5 April), or an average of 91 days over a four-year period.

In counting days, a long-standing concession has allowed days of arrival in and departure from the UK to be ignored, so someone arriving on a Friday and leaving on the Sunday is in the UK only one day. If you arrive on Saturday and leave on Sunday, you have not been there at all as far as HMRC is concerned.

From April, HMRC will include days of arrival and departure in the count. For long-distance travellers to the UK this is unlikely to have much impact, but it will be much more relevant to us in Guernsey, notwithstanding the fog.

Anyone making frequent trips to the UK will now have to be more careful about the time spent there. For Guernsey trustees, this adds to the problems caused by the changes already made to the residence of trusts for UK tax purposes. For employees of Guernsey companies there is potentially some protection against this change, but this will not be relevant for everyone.

If this cloud has a silver lining, it means that people affected by this change will be spending more time, and it is hoped money, in the island.