Guernsey: Proposals to amend the income tax regime for pension contributions and pension benefitsThursday, October 28th, 2010
In a newly-published States Report from the Treasury & Resources Department, a number of changes are proposed to the existing income tax regime in respect of pensions, both in terms of relief for contributions into schemes and the taxation of benefits from those schemes.
In summary, the proposals are as follows:
- The process of seeking scheme approval will be simplified and submission of, often bulky, scheme documentation will not be required as a matter of course. A suitable application form will be devised for trustees and administrators to complete.
- Occupational pension schemes will be able to calculate lump sum benefits by reference to fund value rather than, as at present, final remuneration.
- The maximum lump sum which may be taken from all types of pension arrangement will be increased to 30% of fund value.
- Lump sums may be taken at any time after age 50, by way of commutation of pension benefits, and will no longer be dependent on pension or annuity benefits commencing at the same time.
- Pension benefits paid by occupational pension schemes may be calculated by reference to the value of the fund rather than final remuneration, as at present.
- An individual will no longer need to actually retire from employment in order to activate benefits from an occupational pension scheme, subject to the rules of the specific scheme.
- There will be no overall monetary limit on the amount which may be contributed to an occupational pension scheme or personal pension by any individual.
- Tax relief will be available to all individuals in respect of their own contributions, whether or not they are in receipt of relevant earnings. However, this will be subject to a limit of the lower of 100% of taxable income or a specific monetary limit to be set by Regulation by the Department. At present the Department anticipates that this limit will be between £35,000 and £50,000.
- Relief to an employer for contributions they make to an employee’s pension arrangement will continue on the same basis as at present.
- Contributions to a personal pension by an employer will not constitute an emolument in the hands of the employee, thus placing them on the same basis as contributions made to an occupational pension scheme.
- If an individual does not take advantage of the full tax relief available to him in any year, he may carry forward the unused tax relief to a later year, subject to certain limits.
- Full commutation of benefits will be available to an individual in certain circumstances, subject to a tax charge.
- Where an employee contributes to a group personal pension sponsored by his employer, the net pay arrangement will be discontinued, allowing the contributions to be deducted before tax due under the ETI scheme is calculated.
- In order to facilitate proper control over schemes which are based in Guernsey but have non-resident members, the Director will be able to approve a scheme whether or not the individuals and/or the employers are resident in Guernsey.
No commencement date for the changes is suggested, principally as some of the changes will be subject to a Projet de Loi.