P&R agrees action to prevent tax avoidance

• People have been using personal investment companies to make non-commercial loans and avoid tax.
• Additional guidance will classify repayments of non-commercial loans as dividends for tax purposes.
• Amendments to the Income Tax (Guernsey) Law will be proposed to implement these changes.
• Changes will help ensure timely tax reporting and collection, addressing a £44 million deficit.

The Policy & Resources Committee has initiated actions to tackle a significant avenue of tax avoidance a move aimed at ensuring that all individuals and businesses contribute their fair share.

The measures stem from concerns that some individuals are abusing personal investment companies by making non-commercial shareholder loans, enabling them to receive repayments tax-free.

To remedy this issue, an example will be included in the Statement of Practice M45 titled “Legal avoidance,” clarifying that repayments of non-commercial shareholder loans are to be treated as dividends if the company’s income is taxed at less than 20%. Consequently, this change will compel the company to report and remit a 20% tax on behalf of the shareholder in relation to these repayments.

Moreover, the Committee sanctioned a proposal to amend the Income Tax (Guernsey) Law, 1978, to officially categorise repayments of non-commercial shareholder loans as dividends. This amendment is intended to be incorporated into the 2026 Budget, thereby ensuring that relevant taxes are reported and paid promptly by the companies concerned.

Furthermore, adjustments to the 2024 company tax return will facilitate the identification of such loan repayments, allowing the Revenue Service to undertake targeted inquiries effectively.

Deputy Lyndon Trott, President of the Policy & Resources Committee said:  “When it comes to income tax, we have to ensure that everyone is paying their fair share, including businesses and individuals. But we are even more acutely aware of this at a time when we as a government have a £44 million deficit."

He continued, “This isn’t the panacea for our financial woes, but we’re taking action to close this loophole to make sure that we’re collecting tax that belongs to the public purse to contribute towards essential services that benefit our community.”