Client Alert: Guernsey Budget 2025
The 2025 Budget Report was published on 8 October 2024. The Budget aims to “support renewal and growth, enable critical investment in our ageing infrastructure”, while noting that it has a short-term focus around stabilising the financial position of the States of Guernsey. Longer term tax reforms will be a focus for the new Assembly, after the election in June 2025.
The Budget proposes a raft of measures to tackle “fiscal challenges that cannot be put-off any longer”, pointing to a structural imbalance in the States’ finances since 2008.
The following is a summary of the key tax changes proposed. More detail is contained in the Budget Report?here. The tax announcements are subject to approval by the States at their meeting on 5 November and should not be considered final until approval has been given.
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Personal income tax – rate change?
In advance of any long-term decision-making on tax reforms, the Policy & Resources Committee (P&R) propose that action is required now. To ensure financial stability and to protect the States’ cash reserves in the short-to medium-term they propose an increase in the individual standard rate of income tax of 2%, to 22%, for a limited period of two years. This will result in an estimated increase of ￡34m in income tax revenues for each of the years 2025 and 2026.?
As this proposal introduces a 2% differential between the company higher rate and the individual standard rate, a number of consequential changes are also proposed, for example in respect of distributions to Guernsey residents, loans to participators and underlying company income taxed on the settlor of a revocable trust.??
Penalty provisions will also be amended so that they are charged at the highest rate of tax applicable to the defaulter; 20% for companies and 22% for individuals, for 2025 and 2026.
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Personal income tax allowances?
To offset the impact on low-income households of the rise in personal income tax, the States are proposing an increase of ￡1,100 in the personal income tax allowance, to ￡15,000, a cost to tax revenues of ￡6.2m, and a recommendation of an at least the rate of inflation increase for 2026.
Furthermore, P&R is recommending that, with effect from 1 January 2025, the withdrawal threshold for Personal Allowances for Higher Earners will be increased to ￡82,500, in line with the inflation forecast. This is aimed at maintaining the current value of the threshold in real terms and in being consistent with agreed policy, that the threshold for withdrawal needs to be at such a level where there is little or no significant impact on lower and middle-income households.?
Additionally, it is recommended that the supplementary personal income tax allowances e.g. Dependent relative allowance, be increased by 3.2%.
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Pension schemes – tax-free element of lump sums?
The specific limit on the tax-free pension lump sum of generally up to 30% of the fund value is to remain at its 2022 level, ￡203,000, for 2025.
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Principal private residence and domestic let properties – mortgage interest relief?
It is proposed that the pause in the withdrawal of mortgage interest relief for principal private residences will cease and the limit on tax relief will reduce from ￡3,500 to ￡2,000 in 2025.?
For let residential properties, it was agreed in 2023 that mortgage interest relief was to be systematically reduced to nil by 1 January 2026. However, it is noted that the private rental market is currently showing evidence of significant stress with rising prices and very constrained supply. The recommendation is for a halt to the phased withdrawal of this relief, meaning that 50% of interest payments will continue to be deductible in 2025 and in subsequent years.
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Rent-a-room relief introduction?
Following analysis of similar schemes in the UK and Jersey, P&R is recommending the introduction of a rent-a-room relief, with the exemption set at a maximum of ￡10,000 per room, for up to a maximum of two rooms, with eligibility restricted to those properties where one or two rooms only are let. Only the taxpayer’s principal private residence is eligible for this scheme.?
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Charitable donations?
Guernsey registered charities can claim a 25% tax rebate on charitable donations made by individuals of between ￡500 and ￡7,500. P&R recommends that the maximum aggregate donation is increased to ￡10,000, an increase of 33%.
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Tax caps?
Following increases in the 2023 and 2024 Budgets, no increases are proposed to the tax caps for the 2025 tax year.?
There is a recommendation for an equivalent to the Guernsey Open Market Tax Cap for qualifying new residents to Alderney from 1 January 2025, set at ￡60,000. To qualify an individual would need to have paid document duty of at least ￡50,000 in Alderney on the purchase of a property within a 12-month period of taking up permanent residence. The tax cap would only apply for the individual’s year of arrival and the three calendar years immediately following.
Document Duty and anti-avoidance duty
Document Duty thresholds have been reviewed and it is proposed they are increased by RPI (which is used rather than RPIX as the latter would remove the impact of mortgage interest). To take account of inflation since the previous review, P&R recommends increasing Document Duty thresholds by 25%. Additionally, they are recommending a new threshold of Document Duty be introduced at 7% for transactions over ￡5m. The revised thresholds proposed are as follows:
Scheme to encourage “down-sizing”?
The Report notes that while it is clear that the downsizing relief scheme is being utilised, it is unknown how many of these transactions came about as a result of the relief and how many would have completed regardless. As a result, it is difficult to judge whether the policy has induced a change in behaviour.?
However, P&R acknowledges that providing fiscal incentives for people to downsize remains important and is recommending that the reduction in Document Duty to incentivise ‘down-sizing’ is continued for a period of two years.?
They recommend that the relief remains aligned with the revised thresholds to be applied to standard document duty rates. This would mean that the threshold on the 0% rate would increase from ￡0.4m to ￡0.5m, in line with the change in the upper threshold on the second standard rate. This would increase the maximum available relief from ￡10,875 to ￡13,750.
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Other Taxes and Duties
Cigarettes, cigars and other tobacco products?
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– an increase of 13.2% from 8 October 2024.
This would increase the excise duty on an average packet of 20 cigarettes from ￡7.57 to ￡8.57.?
Alcohol duty – a freeze on the duty rate
This would maintain current rates.?
The real term budget impact of this is ￡540,000.
P&R is recommending a change to the definition of small brewers and cider makers and an increase in the associated discount to 60%
From 1 January 2025
Motor fuel – an increase of 2.7p to 86.8p per?litre (a 3.2% increase)?
Petrol for marine use –?58.9p per litre (a 3.2% increase).
Concessionary rate of duty for biodiesel is introduced –?56.8p per litre (30p lower than the standard rate for diesel).
Diesel for marine (and other non-road) use would remain exempt from duty.
Duty free limit for biodiesel/HVO is removed and a concessionary rate introduced.
The increases in motor fuel duty should raise ￡0.5m more than the forecast from 2024.
Recommendation that 2025 rates are increased in line with inflation, by 3.2%.
Not recommending the introduction of a penal rate of TRP for vacant commercial buildings, vacant domestic properties, and derelict glasshouses.
It is recommended that all commercial buildings and land tariffs for 2025 are increased by 3.2%.
P&R is recommending that domestic buildings and land tariffs for 2025 are increased by forecast RPIX (3.2%), maintaining their current value in real terms.
In line with inflation and not representing an increase in real terms.
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International Tax Measures
Pillar Two
At the September 2024 States meeting, the States agreed the introduction of an income inclusion rule and domestic minimum top-up-tax for large in-scope multinational enterprises (i.e. those with global annual revenues of more than €750m) from 1 January 2025. ?The additional revenues raised by these proposals are recognised in the 2025 Budget Report, the year in which they are effectively earned, however are unlikely to be fully realised until 2027.
P&R acknowledge that this provides an opportunity to review Guernsey’s competitive position. A proportion of the additional revenues has been earmarked to achieve this, recognising this in turn should benefit the wider Guernsey economy. Engagement and consultation is planned with business to determine the most effective use of these ringfenced funds to enable market growth and sustainability, with the aim of bringing proposals forward in due course.
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Crypto-Asset Reporting Framework (CARF)
CARF responds to the rapid advancement, development and growth of the crypto-asset market. CARF is an international standard on automatic exchange of information between tax authorities and the Report notes that its implementation will further improve the State’s ability to ensure tax compliance.
In 2023, Guernsey endorsed the implementation of CARF along with other jurisdictions, including the UK, Jersey and the Isle of Man. P&R is now recommending that CARF is specified as an international tax measure to adhere to that 2023 commitment and to enable the relevant regulations to be made implementing the rules, commentary and guidance in domestic law in time for exchanges to commence by 2027.
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Deloitte Comment
The 2025 Budget attempts to raise the revenue needed to address the immediate financial position of the States of Guernsey before there is a decision on a medium to long term solution, once the new Assembly has been elected in June 2025. The increase in the rate of personal income taxes is the main lever aimed at rectifying the fiscal imbalance whilst the increase in personal income tax allowances aims to remedy any strain on lower-income taxpayers. ?
The international tax measures relating to Pillar Two and CARF are as expected but will need careful consideration by Guernsey businesses and their clients.
If you have any questions or would like to discuss any of the above, please do get in touch with your usual Deloitte contact or any of the below.?
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Guernsey
Jo Huxtable: 01481 703 308
Martin Popplewell: 01481 703 229
Adam Hart: 01481 703 321
Matthew Maltby: 01481 703 267
Gary Maclachlan: 01481 703 279