Sections 39B, 39C, 39D, 39E and the Sixth Schedule of the Income Tax Law limit the amount of tax payable by an individual resident in Guernsey/Alderney and restrict any repayments available on distributions received.
Sections 39B, 39C, 39D, 39E and the Sixth Schedule of the Income Tax Law are available here.
A summary of the tax caps and the impact these will have on your Social Security Contributions are provided below. If you would like to see more detail on the caps available, please refer to the Sixth Schedule in the download section.
The tax cap is based on the level of "qualifying" and/or "non-qualifying" income you have. If you have enough income to qualify for the tax cap, you won't be given any personal allowances. The cap is also proportioned in the year of your arrival in, or departure from, Guernsey.
If you are married or in a civil partnership, and you are currently jointly assessed, one cap will apply to the total income of both yourself and your spouse. If separate assessments have been requested, you will be taxed as if you were not married or in a civil partnership, and the cap will apply, if applicable, to each of you separately.
When independent taxation is introduced on 1 January 2023, each spouse will be treated separately and, as such, the cap will apply to each individual's income. An election for the tax cap will, if they have sufficient income, need to be made by each spouse individually. Grandfathering provisions will be put in place for the Alderney and Open Market Tax Caps only (see below).
If you are able to take advantage of the cap, you don't need to complete the personal return each year with details of all of your income, but you can complete the appropriate tax cap form which is available on the downloads section of this page.
Cap on qualifying income
- Generally qualifying income is any income you have from outside of Guernsey and Guernsey bank interest. The limit of tax payable on this income is £150,000 for 2023 (£130,000 for 2022). No Guernsey income (other than bank interest) can be taken into account in this cap, so if you do have other income from Guernsey you will need to pay tax at 20% on this in addition to the £150,000 (£130,000 for 2022) (subject to a further cap on qualifying and non-qualifying income - see below). Any income from Guernsey (other than bank interest) is treated as "non-qualifying income".
- Example: Mr A is resident in Guernsey and has the following income:
Qualifying income UK investments £400,000 French income £640,000 Guernsey Bank Interest £10,000 Non-Qualifying income Guernsey loan interest £15,000 Total £1,065,000 - If the tax cap was not applied he would need to pay tax of £213,000 (£1,065,000 taxed at 20%, no personal allowances would be available as income is over £90,000, the limit for the withdrawal of personal allowances for 2023)
- With the cap applied, his tax bill would be:
Qualifying income - tax capped at £150,000 Non-qualifying income £15,000 taxed at 20%: £3,000 Total tax due £153,000 Cap on qualifying and non-qualifying income
- If you have a high level of income from both in and outside of Guernsey, or just Guernsey income, then the maximum tax that you pay is capped at £300,000 for 2023 (£260,000 for 2022) (but this does not include income from land and property in Guernsey or income derived from Guernsey pension/annuity schemes in respect of triviality payments or lump sums above the tax free limit. Tax is due on this income in addition to the cap).
- Example: Mr B is resident in Guernsey and has the following income:
Qualifying income UK investments £350,000 French income £640,000 Guernsey Bank Interest £10,000 Non-Qualifying income Guernsey wages £425,000 Guernsey rental income £19,000 Guernsey loan interest £250,000 Total £1,694,000 - If the cap was not applied he would pay £339,000 (£1,694,000 taxed at 20%, no personal allowances would be available as income is over £90,000, the limit for the withdrawal of personal allowances for 2023)
- With the cap applied, his tax bill would be:
Qualifying and non-qualifying income - capped at £300,000 Tax on Guernsey rental income £19,000 at 20%: £3,800 Total tax due £303,800 Individuals resident in Alderney
- A resident of Alderney, who hasn't previously been capped as above, will be capped at £50,000 on their "Alderney qualifying income", for each year from 2016 to 2025. If they have been capped previously then the limits of £150,000 and £300,000 (£130,000 and £260,000 for 2022) continue to apply.
- For an Alderney resident their "Alderney qualifying income" is income from all sources, regardless of where it is from, except for any income from Guernsey/Alderney land and property or income derived from Guernsey pension/annuity schemes in respect of triviality payments or lump sums above the tax free limit. Tax is due on this income in addition to the cap.
- Example: Mr C is resident in Alderney and has the following income, he has not previously been capped
Alderney Qualifying income UK investments £150,000 French income £50,000 Guernsey Bank Interest £10,000 Guernsey director's fees £105,000 Guernsey loan interest £25,000 Alderney non-qualifying income Guernsey rental income £12,000 Total £352,000 - His tax bill would be:
Alderney qualifying income £50,000 Guernsey rent £12,000 at 20%: £2,400 Total tax due £52,400 - If you are married or in a civil partnership, and you are currently jointly assessed, the Alderney tax cap will apply to the total income of both yourself and your spouse. If separate assessments have been requested, you will be taxed as if you were not married or in a civil partnership, and the cap will apply, if applicable, to each of you separately.
- Anyone who is jointly assessed and paid the Alderney Tax Cap in 2022, will have their joint liability grandfathered until 2025. They will then be treated independently.
- Example: Mr and Mrs D elected for the Alderney Tax Cap in 2022. Their tax liability will be capped at £50,000 in 2021, 2022, 2023, 2024 and 2025. With effect from 2026, they will be treated independently and will either each need to elect for the cap on qualifying/non qualifying income (see above) or each complete a full personal tax return.
- Example (when independent taxation is introduced on 1 January 2023): Mr and Mrs E arrive in Alderney in 2023. As this is after the introduction of independent taxation, they will each be required to elect for the Alderney Tax Cap and will each have a liability of £50,000 in 2023, 2024 and 2025.
Individuals resident in Guernsey who have purchased a Part A open market property (The Open Market Tax Cap)
- From 1 January 2018, a new resident to Guernsey (who has not been resident in Guernsey in the previous 3 years) may claim a tax cap of £50,000, for the year they arrive in Guernsey and the following 3 years.
- This cap can only be claimed if the individual has paid £50,000 or more in document duty on the purchase of a property, that is on Part A of the Open Market Register, and that property is purchased within 12 months (either before or after) they take up permanent residence in Guernsey. A Form A2 can be completed, there is no need to complete a full personal tax return.
- This Open Market Tax Cap applies in respect of both qualifying and non-qualifying income as defined above. Tax due on income arising from Guernsey land and property or income derived from Guernsey pension/annuity schemes as above would need to be paid in addition to the Open Market Cap.
- If you are married or in a civil partnership, and you are currently jointly assessed, the Open Market tax cap will apply to the total income of both yourself and your spouse. If separate assessments have been requested, you will be taxed as if you were not married or in a civil partnership, and the cap will apply, if applicable, to each of you separately.
- Anyone that has elected for the Open Market Tax Cap prior to the introduction of independent taxation, (and are currently jointly assessed) will have their £50,000 joint liability grandfathered for the duration it applies. They will then be treated independently.
- Example: Mr and Mrs F elected for the Open Market Tax Cap in 2021. Their tax liability will be capped at £50,000 in 2021, 2022, 2023 and 2024. With effect from 2025, they will be treated independently and will need to either each elect for the tax cap (on qualifying or non-qualifying income) or submit a full personal tax return.
- Example (when independent taxation is introduced on 1 January 2023): Mr and Mrs G arrive in Guernsey in 2023 and purchase a property in 2023. As this is after the introduction of independent taxation, they will each be required to elect for the Open Market Tax Cap, (if they each have sufficient income and the house has been purchased jointly) and will each have their liability capped at £50,000 for 2023, 2024, 2025 and 2026.
Effect on Social Security contributions
- If you are self-employed, non-employed, or over pension age and elect to take advantage of the tax cap, you will be assessed at the maximum weekly rate for the payment of Social Security contributions.
- The maximum rates for 2023 (per week) are
Self-employed £375.84 Non-employed £336.25 Over Pension age £110.04
