On Tuesday 9 October 2018, Susie Pinel, the Minister for Treasury and Resources presented her first draft budget for the new government.
The proposed legislation and certain guidance notes will be released on 22 October 2018.
The full budget statement can be accessed here but below is a summary of the key announcements:
Following a significant period of review and consultation with key stakeholders, the Crown Dependencies and the European Union’s Code of Conduct Group (Business Taxation), the Government will be introducing legislation later this month that will ensure that Jersey resident companies undertaking certain identified activities can demonstrate economic substance in Jersey from 2019 onwards. Detailed guidance notes are also expected to be released alongside the draft legislation.
The following changes to personal tax were proposed and will be effective for the 2019 year of assessment:
The measure proposes that the standard tax-free income allowance be increased by 3.5% from £14,900 to £15,400.
The married couple/civil partnership threshold will increase from £23,950 to £24,800.
The second earner’s allowance will increase by £150, from £5,850 to £6,000. This will ensure that there is equality between married and cohabiting couples, where both partners are earning income.
As part of the package agreed by the States Assembly, the Higher Child Allowance which is available to parents with children over 17 will be removed in order to fund the new higher education grant scheme.
The Budget provides for the introduction of two new methods which will allow relief from taxation in Jersey, for those with a low worldwide income or who suffer double taxation on their income. If non-residents evidence that their worldwide income is less than the standard exemption thresholds available to Jersey residents, their Jersey tax liability will be reduced to nil. Alternatively, if a non-resident individual’s worldwide income exceeds the standard income tax exemption threshold, the Jersey tax rate paid on the non-resident’s Jersey source income may be reduced to below 20%. Where this relief is claimed, some of the Jersey tax withheld maybe refunded.
The government will publish a summary of emerging findings and launch the consultation before the end of November 2018. While driven by the need to address anachronistic features of our existing system, the consultation and review will involve a much broader review of the personal tax system.
Effective from the 2019 Year of Assessment, the tax liability calculation of a Higher Value Resident (HVR) will be amended. When calculating whether a HVR has minimum taxable income of £725,000, income from Jersey rental properties will be now be included and be subject to tax at 20%.
The Minister proposes that, from 9 October 2018, changes will be made to the Income Tax Law to prevent pension holders from utilising the different commutation provisions to access more than 30% of the pension fund tax free. Due to changes previously introduced, in some circumstances it was possible for a pension holder to access 30% of their pension fund as a tax free lump sum and, if this results in the value of the remaining pension fund falling below £35,000, they could commute that remaining value and also treat 30% of this latter commutation as tax free. The proposed amendments correct this.
There are proposals in the 2019 budget to reduce stamp duty and land transactions tax (LTT) to help first-time buyers purchasing their first home up to the “average house price”.
From 2019, properties valued up to £500,000 will qualify for first-time buyer’s relief. There will also be a phasing out of stamp duty/LTT charges on mortgages over time and in Budget 2019 stamp duty/LTT on mortgages for homes costing up to £600,000 will be abolished. Additionally, the stamp duty charge will be tapered for homes valued between £600,000 and £700,000.
To fund the two proposals, the stamp duty/LTT rates will be raised by 0.5%, for homes valued over £500,000. The States Treasury and Exchequer/Revenue Jersey will also launch a consultation on a new Stamp Duty anti-avoidance provision for ‘enveloped’ properties (i.e. those placed within a company structure to avoid Stamp Duty arising on transfers) before the end of November 2018.
It had been rumoured that the de minimus GST level may be reduced or removed. This has in fact remained at £240.
The minister proposed that care provided at home by regulated providers will be receive the same GST treatment as care provided by private care agencies. Regulated domiciliary care will also be exempt from GST with effect from 2019.
Reviews will commence in 2019 through the taxation of the profits of mutual trading and the feasibility of applying GST to imported digital services (including television and music services).
The draft budget includes various proposals relating to changes in payment deadlines and penalties, effective for the 2020 year of assessment.
Following consultation with key stakeholders, it was confirmed that there will be no measures introduced to tax the profits of large alcohol vendors or certain bookmakers. However, the review of whether to reduce the quantity of tobacco which can be imported into Jersey by individual travellers from 200 cigarettes to 40 (the duty-free allowance) is ongoing.
The last Budget introduced taxes to LCRs. The 2019 draft budget proposes an amendment to the rules relating to the taxation of LCR.
Following these amendments, a company could elect to calculate its tax liability for the 2018 year of assessment as if it had a 31 December accounting year end. 31 December will also be regarded as the company’s accounting date for subsequent years of assessment and any change from that date will be dealt with under Article 64B of the Jersey tax law.
This change is designed to ensure that the tax introduced in the 2018 draft budget is functioning as intended.
Previously, companies whose financial year end was not 31 December would have been subject to tax on profits earned prior to 1 January 2018. Although transitional agreements were included in the 2018 budget, companies were being forced to consider a change in their accounting year end which has been identified as increasing the administrative burden putting it out of line with the objectives associated with the introduction of the tax.
The draft budget statement and the draft amended law are due to be debated in the States sitting on 28 November.
Tax leader, PwC Channel Islands
Tel: +44 7700 838233
Tax Director, PwC Channel Islands
Tel: +44 7700 838284