Guernsey Budget 2024 response

This Budget was very much business as usual following the States rejection of P&R’s plans for the reform of taxation and social security which included the introduction of a Goods and Services Tax.

The measures included:

• An increase to the annual personal tax and other allowances in line with the 6.7% rate of inflation. This means that the personal allowance has increased by £875 to £13,900.

• The threshold at which the annual personal tax allowance (including mortgage interest and pension contributions relief) is withdrawn will be lowered in 2024 from £90,000 to £80,000. This means that an increasing number of taxpayers will find that they are having their tax personal allowances being withdrawn.

• To help mitigate the effects of inflation and the high cost of housing, the withdrawal of mortgage interest relief has been suspended for 2024 and the maximum relief will remain at £3,500 for 2024. It should be noted however that interest relief available for domestic buy to let property continues to be withdrawn and for 2024, only 50% of interest paid will be eligible for relief.

• The wealthiest residents are also being asked to contribute more in tax. This will be achieved through an increase in the annual tax cap (that is the maximum tax that a resident individual is required to pay) by £10,000 to £160,000 on overseas income and by £20,000 to £320,000 on worldwide income (excluding income from Guernsey Realty).

• New residents who purchase an Open Market property (and in doing so pay Document Duty of £50,000 or more) have been able to limit their annual tax liability in the four years after arrival to £50,000 will now be asked to contribute a further £10,000 following an increase in the cap to £60,000.

• Many Open Market property transactions involve a purchase through a company. An anomaly in the Tax Law meant that an individual buying an Open Market property through a company and who paid £50,000 of Document Duty Anti-avoidance Duty were not previously eligible to restrict their annual tax liability to £50,000. This anomaly is removed with effect from 1 January 2024.    

• For those individuals relocating to Alderney from outside the Bailiwick, the tax cap has increased from £50,000 to £65,000.

• In line with the Government’s stated policy of reducing the number of cars on our roads, an interesting extension to the taxable Benefit in Kind exemptions has been introduced. This exemption will mean that employees will not be taxed where their employer provides bus passes, bicycles and e-bicycles, and also for mileage allowances paid to employees for using their own bicycles for business purposes. It will be interesting to see whether these measures have an impact on the number of commuter cars on our roads in the morning rush hour.

• In line with the previously agreed 10-year increase in social security contribution rates, the rates for 2024 (2023 in brackets) have increased to:

Class 1 Employer – 6.9% (6.8%)

Class 1 Employee – 7.2% (7.0%)

Class 2 Self-Employed – 11.9% (11.6%)

Class 3 Non-Employed (under pension age) – 11.3% (11.0%)

Class 3 Non-Employed (over pension age) – 3.7% (3.6%)

The upper income limit has also increased from £168,480 to £179,868.

• Other changes introduced by the Budget include a £400 increase in the annual Exempt Company fee. This fee had remained at the level of £1,200 for many years so the increase to £1,600 is significant.

• There has also been a change in the basis of assessment of investment holding companies. Historically, unlike trading companies, investment holding companies’ tax liability has been based on a calendar year rather than the company accounting year end. With effect from 2024, an investment holding company with a year end, not based on a calendar year, will be able to calculate its annual taxable income based on the company year end, rather than a calendar year end. This should have the effect of simplifying the company’s annual tax declaration.

• The 1 July 2024 sees the introduction of the long-awaited Secondary Pension Scheme which will require employers to establish and contribute to pension schemes for their employees where such a scheme is not already in place.  There is a reminder that any existing pension scheme rules should be reviewed to ensure that these meet the criteria for secondary pension schemes. Introduction of the scheme is phased based on the total number of employees at 30 June 2024. For employers with more than 25 employees the start date is 1 July 2024 and for employers with between 11 and 25 employees, the start date is 1 October 2024, later start dates apply for employers with 5 or fewer employees.

• One final point of note is the intention to bring forward the annual tax return filing deadline to 30 November from 28 February. The first tax returns affected will be those for the calendar year 2024 which must be submitted by 30 November 2025. As an interim measure, the calendar year 2023 filing deadline is being brough forward to 31 January 2025.

Summary

It is worth reflecting that with the lowering threshold for the withdrawal of personal allowances, and the increase in the Social Security upper income limit and contribution rates, an increasing number of taxpayers are finding that their overall combined income tax and social security contributions burden has increased to as much as 31.9% of annual income.

This relatively routine Budget belies the recent turmoil caused by the GST and Social Security reform debate and does not deal with the ongoing structural deficit that will need to be addressed by the new Policy & Resources Committee.