When the prominent financier Guy Hands made headlines last year by leaving Britain apparently to escape the new 50 per cent tax rate for high earners, he moved to the Channel Island of Guernsey.
Less glamorous than Monaco or Switzerland, the 24-square-mile island off the Normandy coast is not the location of choice for every high roller seeking a more benign tax environment.
But the plethora of offices of private banks, accountants and lawyers in Saint Peter Port make it plain that ultramodern financial services are the bedrock of the Guernsey economy.
Robert Shepherd, managing partner of Guernsey law firm Ozannes, says the island has seen an increase in interest from wealthy UK residents keen to avoid the new higher tax rate – and it is an alluring destination for many looking to relocate their families.
“It’s like living in England, but not in England,” he says. “The schools system is familiar, the language is the same. It’s not like moving to Geneva or Monaco.”
The currency is sterling, the time zone is the same and transport links to Britain and Europe are excellent.
The constitutional position of the island has allowed a low-tax environment to flourish. It is a dependency of the UK Crown, but has the right to legislate independently on domestic matters such as taxation. Internationally, it is not technically part of the UK or European Union, though it has a special trading status within the EU.
The jurisdiction has become more appealing to the high-net-worth set after recent tax changes aimed at luring wealthy entrepreneurs to the island.
As part of a package of tax changes introduced in 2008, Guernsey imposed a tax cap of £250,000 ($380,000) paid on non-Guernsey-sourced income. But compared with the Isle of Man’s maximum tax bill of £100,000 and Jersey’s reductions in tax rate after £100,000 is paid, that looked steep for many potential residents.
Ministers acknowledged the tax cap was “out of the money”. Now the cap has been cut to £100,000 on non-Guernsey-sourced income, with an option to cap total tax liability on worldwide income at £200,000.
Income tax is a flat rate of 20 per cent after fairly generous personal allowances of roughly £15,000. The island has no tax on capital gains, inheritance or sales.
It is simple to gain residency. Unlike its sister island Jersey, where wealthy individuals must be granted a coveted 1(1)K status, which comes with a minimum income tax bill and restricts residents to buying the most expensive tier of houses, anyone can become a Guernsey resident by buying a property.
Houses on the island are either “local market” or “open market”. Local-market homes are restricted to Guernsey natives and those with specific housing licences, but anyone can buy one of the remaining 7 per cent of properties deemed open market.
Price differences between the two types of homes are significant. Matthew Henry, managing director of Swoffers, Guernsey’s largest estate agency, says a one-bed flat on the open market would start at roughly £500,000, compared with £200,000 on the local market. Prices for detached open-market homes range from £1.2m.
Henry expects prices to rise this year. “There is high demand from people looking to move offshore mainly because of the 50 per cent tax rate, the quality of life and the lack of inheritance tax,” he says.
With a population of 65,000, there has for years been almost full employment. “The recession has had an effect but we have seen nothing like the depth of recession or job losses that you have seen in England,” says Shepherd.
Labour can, however, be a headache. The island has a policy of no population growth, and housing licences for essential staff can be tricky to obtain and are rarely renewed.
There is also uncertainty over the corporate tax regime. The tax system was shaken up in 2008 amid international scrutiny of offshore jurisdictions’ tax practices. Like Jersey and the Isle of Man, Guernsey adopted a “zero/10” structure, where most companies pay no corporate tax and a minority, such as banks, are taxed at 10 per cent. However, some EU countries have objected to the system, and more changes appear to be on the way – none of which is likely to affect the attraction of the island.
Henry says: “I suspect in the next 12 months we will see a decline in the number of [open-market] properties available. There are just fewer reasons for people to want to move back to the UK.”