Guernsey is part of the Bailiwick of Guernsey, within the Channel Islands. It is located 164 miles south-west of London and 27 miles from the Brittany coastline of France, with a population of 62,000 people. The other islands in the Bailiwick are Alderney, Sark, Herm, Jethou and Brecqhou.
Constitutionally, Guernsey is a dependency of the British Crown having its own parliament, the States of Deliberation, but is reliant upon the United Kingdom for foreign representation and defence. The States of Deliberation generally meets on a monthly basis and consists of 38 deputies plus two representatives from the States of Alderney, a presiding officer (the Bailiff, or the Deputy Bailiff in his or her absence) and two law officers of the Crown (being Her Majesty's Procureur (Attorney General) and Her Majesty's Comptroller (Solicitor General)). Other than the deputies, the appointments are made by the Crown. Guernsey deputies are elected for a period of four years. The Bailiff is also the senior judge of the Bailiwick. In addition, the Queen appoints a Lieutenant Governor, who is her personal representative in the Bailiwick.
Guernsey enjoys a unique relationship with the European Union, along with the two other Crown Dependencies, the Isle of Man and Jersey. Under the terms negotiated by the UK in 1971, Protocol 3 of the Treaty of Accession,2 Guernsey is within the common customs territory of the community. This means that goods exported from Guernsey into the EU are not subject to the common customs tariff. For all other purposes, Guernsey is outside the EU, but EU directives, which are binding on Member States, may be brought into force in the Bailiwick by an ordinance passed by the States of Deliberation3 if they are thought to be of value to the Bailiwick. Guernsey has a representative office in Brussels. Guernsey's Protocol 3 relationship with the EU will end when the UK leaves the EU and Guernsey's authorities are working closely with the UK government on the terms of the exit and the future relationship.
Guernsey law has its origins in Norman law, the Bailiwick having been part of the Duchy of Normandy since 993, but in 1204 gained the right to self-government after pleading allegiance to King John as he fought to maintain his territory in France.
The legal system has subsequently been increasingly influenced by English law, and the Guernsey courts will refer to case law from England and other common law jurisdictions, with the Privy Council being the highest court that may deal with Guernsey court matters.
Today, Guernsey is regarded as a pre-eminent international financial jurisdiction and a centre of excellence for wealth-planning matters. In addition, it has a long-standing reputation for political stability.
Guernsey's regulatory standards have received global recognition through a succession of reviews since 19974 and meeting international standards set by bodies such as the Financial Action Task Force and the IMF. The report into the most recent international assessment undertaken by MONEYVAL in 2014 was highly positive and found that Guernsey had surpassed the standards set in the equivalent IMF report on Guernsey in 2010. Guernsey has subsequently implemented harsher penalties for financial crime in line with recommendations in the MONEYVAL report.
The solid legal, political and regulatory platform is supported by a strong financial services infrastructure including international standard accountancy and law firms, a banking industry represented by leading international institutions, and other important support sectors such as insurance and investment management services.
Since the late 1960s, when financial institutions and professional advisers first began to recognise the potential for Guernsey as an international financial centre, Guernsey has pursued a conservative and long-term approach to its position as a financial centre, resulting in state-of-the-art financial legislation that has evolved to meet the demands of international ultra-high net worth individual (UHNWI) clients.
As a jurisdiction, it offers world-class expertise for international clients and their wealth planning needs, but is also attractive to UHNWI clients as a home. A simple, low-tax environment (see below) is underpinned by good transport links with the UK by air and sea, international telecommunication standards and high-quality education and public services.
Guernsey's domestic budget is funded primarily by income tax receipts, supplemented by indirect taxes such as import duties on alcohol, tobacco and motor fuel. Property taxes are charged but at far lower rates than in many other countries.
Personal income tax is charged at a rate of 20 per cent on an individual's worldwide income. However, during a tax year persons who are 'resident' (spend at least 91 days in Guernsey) but are not 'solely resident' or 'principally resident' (broadly meaning they spend 182 days or more in Guernsey) may elect to pay income tax only on Guernsey-source income plus an annual 'standard' charge of £30,000 in respect of non-Guernsey source income.5
Guernsey-resident individuals may also elect to cap their income tax liability by paying £130,000 on non-Guernsey-source income or £260,000 on their worldwide income.6
Guernsey does not levy (1) capital gains tax, (2) inheritance tax, (3) goods and services tax or value added tax or (4) wealth tax.
Companies do not generally pay income tax on their profits as the standard rate of company tax is zero per cent. However, income from financial services (e.g., from banking, fiduciary, insurance and compliance business) is subject to a 10 per cent rate, and income from certain other sources, including 'large retail business' and utility providers, is subject to a 20 per cent rate.
iii International agreements
Guernsey has a policy of meeting internationally accepted standards on tax transparency. As at 11 June 2020, Guernsey had signed 61 tax information exchange agreements (TIEAs) and double taxation agreements (DTAs) were in force with 26 countries.7
Before the Inheritance (Guernsey) Law 2011 (the Inheritance Law) came into force on 2 April 2012, Guernsey's succession law retained aspects of its Norman law origins and testamentary freedom was limited in a way that would be familiar to its European neighbours. The Inheritance Law is now more in keeping with Guernsey's status as a pre-eminent trust jurisdiction.
Testamentary freedom and the rules on intestate succession vary according to whether or not the individual is domiciled in Guernsey, whether the estate consists of movable or immovable property and, in the case of immovable property, whether that property is situated in Guernsey or otherwise.
For wills executed from 2 April 2012, a Guernsey-domiciled settlor will have complete testamentary freedom. There are safeguards for family and dependants in that the Inheritance Law allows defined persons to apply to the court if they feel that they have not been reasonably provided for in the will.8
Where the individual is domiciled outside Guernsey, the law of their domicile will govern their estate in relation to realty outside Guernsey and all personal property. If that law includes forced heirship provisions, then those provisions will have effect.
Guernsey law will, however, apply in relation to any realty situated in Guernsey.
i Estate administration
When an individual dies leaving assets in their own name in Guernsey, their executor or personal representative will have to apply for a grant of probate (if there is a valid will in existence) or a grant of administration (where the deceased has died intestate). Assets held in joint names will generally pass to the survivor.
Unusually, the issue of a grant in Guernsey remains a matter for the Guernsey Ecclesiastical Court, a jurisdiction long since handed over to the civil courts on the mainland, although proposals to transfer jurisdiction for all probate matters to the Royal Court have been approved and legislation is in the process of being drafted to effect this. In order to obtain the grant, the executor or administrator will generally have to appear in person or be represented by their duly appointed attorney.9 The exception to this is where the estate consists of Guernsey realty; this passes automatically on death to the lawful heirs, be that on intestacy or under the terms of a valid will.
ii Matrimonial issues
In matrimonial matters, Guernsey has modelled its approach on the equivalent legislation in the UK (including recent proposals to allow no-fault divorce), and the court can be expected to take a similar approach in dealing with financial provision orders and the like. As a matter of principle, while Guernsey legislation recognises that pre- and post-nuptial contracts exist, the court retains a discretion to vary or ignore them as it sees fit, in much the same way as its English counterpart. With a growing acceptance in England that prenuptial contracts have a role in divorce proceedings, the expectation is that Guernsey will follow suit,10 particularly when the parties are from a civil law tradition. If such a contract is recognised under the law of the testator's domicile, then clearly it will have an effect on dealing with their personalty and non-Guernsey realty.
From 2 May 2017, same-sex marriages have been permitted in Guernsey.11 Guernsey does not permit same-sex civil partnerships, but does recognise certain overseas civil partnerships and registered overseas relationships.
Guernsey has long been an attractive destination for high net worth individuals looking for a place to live that is familiar, close to major markets and fiscally benign. Guernsey's modernised succession law, increased recognition of diversity, and a modern flexible approach to matrimonial assets will add to its attractiveness. In a political climate where tax rates in the major economies remain high and the attractiveness of the UK for high net worth non-domiciliaries continues to be eroded, Guernsey is well placed to benefit.
Lasting powers of attorney will be introduced into Guernsey shortly under the Capacity (Bailiwick of Guernsey) Law, 2020.
IV WEALTH STRUCTURING
Since the 1960s, Guernsey has demonstrated a willingness to adapt and innovate to meet the needs of an increasingly sophisticated and global market for wealth structuring, whether that be in its state-of-the-art trust law, its world-class collective investment regime or its continuously evolving company law.
Guernsey trust law was first codified in 1989, and then given a significant facelift in 2007, with further enhancements imminent. Since then, Guernsey has introduced a foundations law, a limited liability partnership law, an image rights registry (the first anywhere in the world) and an aircraft registry. It also continues to develop its company law for an increasingly international market. Guernsey's latest focus is on promoting itself as a leading jurisdiction for fintech and digital businesses.
Guernsey in 2020 is very much a first-rank international finance centre. The island has become a centre of excellence for fiduciary services, with access to first-rate law firms, accountants, banks and investment managers. The political system is stable, and the judiciary is extremely well versed in dealing with very complex and high-value commercial and fiduciary matters. In September 2017, after seven years of legal proceedings, a judgment running over 500 pages was handed down by the Royal Court in a case valued at well over £1 billion, thought to be the biggest trial that took place across the Commonwealth in 2016.12 The liquidators appealed, with the judgment in the appeal handed down by the Guernsey Court of Appeal in April 2019.13
While continuing to service institutions and advisers in London, Guernsey has a global significance. Service providers on the island have a distinct awareness and sensitivity to the needs of clients from very different cultures, with consumers of Guernsey fiduciary services coming from Asia, the Middle East, Eastern Europe and Latin America as much as from western European economies and the United Kingdom.
Guernsey trust law has developed from its English law roots to include features that are essential to meet the needs of this global client base, while retaining the fundamental characteristics of trust principles. As well as a growing body of precedent of its own, Guernsey can also look to other common law jurisdictions for guidance on legal principles, and with the Privy Council as its ultimate appellate court, has access to the leading judicial minds in the field. Guernsey's trust law has a number of features that are designed to provide solutions for its global audience. Examples of Guernsey's approach include the following.
Guernsey law does not have perpetuities and accumulations restrictions as evident on the mainland and allows for trusts of unlimited duration.
A Guernsey law trust can be established for charitable or non-charitable purposes. This can be particularly useful for structuring family businesses, commercial structures or in a private trust structure as discussed later in this chapter. An enforcer must be appointed to a purpose trust to hold the trustee accountable.
One of the challenges that settlors face when they establish a trust is to play an ongoing role in the administration of the trust without compromising the benefits that it provides. Under Guernsey law, settlors can reserve to themselves, or to others, a wide range of powers such as powers to (1) revoke or vary the trust; (2) appoint income or capital; (3) direct investments; (4) appoint or remove trustees and directors of underlying companies; (5) change the proper law; and (6) veto trustee decisions.
Trustees of a Guernsey trust have a wide range of duties under the law, including a duty (subject to the terms of the trust) to preserve and enhance the value of the trust, so far as is reasonable. There is also an overarching duty to act in the utmost good faith and 'en bon père de famille'.14 Trustee liability can be excluded under the terms of the trust, but not so as to exclude liability for fraud, wilful misconduct or gross negligence. The recent Privy Council decision on 23 April 2018 in Investec v. Glenalla  UKPC 7 reaffirms that creditors of the trustee do not have direct recourse against trust assets, even if the trustee loses its right of indemnity against the trust assets (for example, if it has acted in breach of trust). This will give settlors of Guernsey trusts a great deal of comfort.
Claims for breach of trust must be brought within three years of the claimant becoming aware of the breach or they will be prescribed.15 Prescription differs from limitation under English law in that it operates to extinguish a claim, rather than denying relief from the claim.
Guernsey has recognised that where breach of trust claims are made against trustees, it is important that any settlement reached between the parties outside the court room has legal and binding effect. The Trusts (Guernsey) Law 2007 (the 'Trusts Law') therefore provides, with appropriate safeguards, for claims settled under alternative dispute resolution to be binding against all beneficiaries of the trust, whether yet ascertained or in existence.16
ii Company law
Guernsey's company law continues to evolve, with significant amendments that came into effect on 3 September 2015.
Among the many changes introduced is an ability for a Guernsey company to be incorporated with, or register, an alternative name expressed in non-Roman alphabet, characters or script. This was in response to demands from clients in East Asia and the Middle East. Other measures included provisions to align Guernsey's legislation with the UK's City Code on Takeovers and Mergers.
Given the number of Guernsey companies that list on the London Stock Exchange, there is a clear need for the company law to remain modern and flexible.
Incorporation in Guernsey is quick and easy with the use of Guernsey's online registry through licensed providers. A company can be incorporated within a day and, for a modest premium, in less than two hours.
In 1997, Guernsey was the first jurisdiction to introduce the concept of the protected cell company, with a further innovation in the shape of the incorporated cell company (ICC) following in 2006. Both are attractive in collective investment and insurance situations, allowing segregation and insulation of assets as between cells in the company, with the principal difference being the need for cells in an ICC to be separately capitalised.
Guernsey law also provides for companies to be limited by guarantee, a facility that is particularly helpful in structures where there is a need for an orphan vehicle.
The recent case of Carlyle Capital Corporation Limited (in liquidation) and others v. Conway and others  comprehensively considered the duties of directors of Guernsey companies and reaffirmed the duty of directors to act in the best interests of the company. This decision was recently upheld on appeal.17
iii Limited partnerships
Limited partnerships established under the Limited Partnerships (Guernsey) Law 1995 are widely used in Guernsey for collective investment schemes and in private family arrangements where the tax consequences of establishing a trust would be unattractive. They allow a separation between ownership of an asset – such as a family business – and its control. Partners have the ability to elect for the partnership to be a body corporate, with separate legal personality.
The limited partnership will generally be a look-through entity, made up of a general partner (often a corporate) and one or more limited partners. The general partner holds the assets of the partnership and they are under its control. The profits of the partnership are allocated to the partners under the terms of the partnership agreement, which is not publicly filed, allowing the terms to remain confidential to the partners.
Limited liability partnerships have been available since 2014, following the enactment of the Limited Liability Partnerships (Guernsey) Law 2013. A limited liability partnership may be a useful vehicle for authorised or unauthorised collective investment fund structures, or for professional firms looking to incorporate for the purposes of limited liability.
While trusts remain very important for Guernsey, it is not always easy for civil law clients to embrace the concept, so the foundation may be more familiar and easier to accept.
With these issues in mind, and with an eye on some of the lessons learned in neighbouring jurisdictions, the Foundations (Guernsey) Law 2012 came into force on 7 January 2013.
The foundation is in some ways a hybrid between a trust and a limited company (often referred to as an 'incorporated trust'). Like a company, the foundation has separate legal personality, a certificate of incorporation, a registered number and a Guernsey registered office.
A foundation is established under a charter, which has two parts: Part A is public and includes basic details of the foundation; Part B is maintained by the registrar but in strict confidence and will include a statement of the purpose of the foundation. This latter provision was included as a regulatory safeguard.
The other core document for the foundation is the rules. These are not registered and remain completely confidential between the founder and the council. The purpose of the rules is to set out how the foundation is going to operate.
All foundations must have a purpose, which may be charitable or non-charitable, though its main purpose cannot be to carry out commercial activities. The foundation may also have beneficiaries, and if it does these can be enfranchised, with a right to information in respect of the foundation like a trust beneficiary, or disenfranchised, with no right to information.
Whenever there are disenfranchised beneficiaries, or if there is only a purpose, a guardian must be appointed with responsibility for holding the council to account.
Foundations are utilised as (1) part of a succession-planning structure for private families – be that a structure that includes a trust or as a substitute for a trust; (2) vehicles for charitable donations; and (3) orphan vehicles in corporate structuring, as opposed to using a purpose or charitable trust.
v Private trust company structures
As noted earlier, the Trusts Law includes provisions allowing the settlor to reserve a broad range of powers. This allows settlors a degree of control over trustee actions and decisions without compromising the fundamental validity of the trust.
For a number of reasons, this may not always be the preferred approach, and may not go far enough in terms of giving the family the degree of influence and control over trustee decisions that they would like to have.
The solution for many families is to establish a private trust company (PTC) under their control to act as trustee of trusts established only for the family. Guernsey allows such a company to act outside the regulatory licensing regime so long as the PTC does not receive any remuneration.
The PTC allows the family to influence and control the structure in a number of ways. For example the settlor or family can establish a set of rules dictating how the PTC should be run and how key decisions should be made through the drafting of the constitutive documents of the PTC alongside other documents, such as a family charter. This means that the family can retain the ability to nominate directors of the PTC to sit alongside directors from the service provider and other professional advisers. These family nominated directors will often be members of the family. Further, the settlor can control the composition of the board of subsidiary companies held by the trust and provide the board of the PTC with guidance on an ad hoc basis or through a letter of wishes. Finally, the trust can still include reserved powers, giving the settlor additional comfort in relation to key decisions.
It is a lot easier for the family to change the composition of the board of directors of the PTC than it would be to remove and replace an independent trustee appointed in the more usual fashion.
When establishing a PTC structure, it is important that the family considers how the PTC should be owned. Traditionally, the PTC would be a company owned by a purpose trust. Alternatively, the PTC can be structured as a guarantee company, although care will need to be taken to ensure issues in relation to succession to guarantee membership are considered. More recently, foundations have been used instead of the purpose trust to own the PTC. Alternatively, the PTC can simply be established as a foundation (known as a private trust foundation).
Guernsey has been at the forefront of the regulating and licensing fiduciary service business. Alongside Jersey, it was the first jurisdiction to introduce legislation for the licensing of fiduciaries in 2000.18
Under the auspices of the Guernsey Financial Services Commission (GFSC), fiduciary, banking, investment and insurance businesses in Guernsey are subject to a state-of-the-art regulatory regime. The GFSC operates a risk-based approach to regulation. Licensees are all risk-assessed and subject to regular visits from and reviews by the regulator.
All licensees are required to abide by core principles set out in the legislation, related rules, codes of practice and guidelines.
Guernsey has a comprehensive suite of legislation in relation to anti-money laundering (AML) and countering the financing of terrorism (CFT), in keeping with the highest levels found internationally. A principal function of the GFSC is to ensure that licensees adhere to the requirements of the legislation and there is a separate division dealing with financial crime and a further division focused on enforcement. One of the common themes of the 2017 to 2019 annual reports across all divisions of the GFSC was that licensees strengthen their controls against cybercrime, especially in relation to client data security and, much more recently, in light of criminals trying to exploit covid-19 pandemic conditions to launder funds because they think firms' AML/CFT controls are stretched by staff absences and working from home. A couple of additional themes for 2019 were the management of outsourcing risk and strengthening board composition to ensure adequate levels of challenge, scrutiny and effective overall direction.
The States of Guernsey is committed to ensuring that Guernsey is a centre of excellence for future digital technology, developing new and innovative businesses through research and development in sectors such as fintech, data storage and analytics, cybersecurity, institutional peer-to-peer lending, digital transactions, including blockchain, and wealth-management platforms. Of particular note is Guernsey's revised data-protection regime enacted in the Data Protection (Bailiwick of Guernsey) Law 2017 (which adopts the EU General Data Protection Regulation (GDPR) into local law). Under the new law, which came into effect on 25 May 2018, all individuals (not just those located in the EU as mandated by GDPR) whose data is processed in Guernsey will be subject to strengthened data-security protections.
Taken as a whole, the regulatory regime is a significant factor in Guernsey's status globally and explains why Guernsey has received such positive reviews from the likes of MONEYVAL.
As ever, the regulatory environment does not stand still and the GFSC is working on a number of initiatives, including revisions to the AML handbook and a comprehensive revision of the regulatory laws. In addition, Guernsey is also looking to reform its insolvency laws and legislation has been passed, albeit a commencement date has not yet been set.
Guernsey, like most other jurisdictions in the world, is also actively involved with the increased degree of reporting and sharing of information in response to the Foreign Account Tax Compliance Act and Common Reporting Standard. Guernsey will be playing its full part in the process of ensuring that its tax neutrality continues to operate in a way that is consistent with international law.
Guernsey introduced its central register of beneficial ownership in relation to Guernsey entities on 15 August 2017. In contrast to the UK's company beneficial ownership register, which is publicly available and searchable, Guernsey's register is centrally maintained, but the information on it is not publicly available. Instead, it is only available to certain Guernsey regulatory and law enforcement bodies (who will be able to disseminate this information to their counterparts in other countries when requests for such assistance are received). This is in line with Guernsey's commitment to maintaining the privacy of clients of Guernsey businesses and promoting the security of their data.
VI OUTLOOK and conclusions
From its beginnings in the 1960s, Guernsey has emerged as a major player in international finance. It has moved with the times, adapting its approach and its legislation to meet the ever-changing demands of its international client base and a rapidly evolving global approach to economic and fiscal change.
With the increasing global tension between protecting the privacy of client data and disclosing who beneficially owns corporate vehicles, clearly Guernsey will need to continue to innovate to remain competitive while being recognised as a good global citizen. Its track record for over 50 years gives every reason for confidence that Guernsey is well placed to meet that challenge.
1 Keith Corbin is executive chairman of Nerine Trust Company Limited. Mark Biddlecombe and Rachael Sanders are in-house legal counsel at PraxisIFM.
2 Treaty of Accession of the United Kingdom to the EEC signed 22 January 1972.
3 European Communities (Implementation) (Bailiwick of Guernsey) Law 1994.
4 'Edwards' Report commissioned by UK Home Office 1997.
5 Section 5B of the Income Tax (Guernsey) Law 1975 and the Income Tax (Standard Charge) (Amendment) Regulations 2015.
6 Sixth Schedule of the Income Tax (Guernsey) Law 1975.
8 Inheritance (Guernsey) Law 2011, Section 4(2).
9 It is possible instead to arrange for a postal oath to be sworn before a notary public or the equivalent.
10 See, for example, E v. E (Royal Ct.), 2003–04 GLR N  where the issue was not about policy, but about the circumstances under which the contract was entered into.
11 The Same-Sex Marriage (Guernsey) Law 2016, (Commencement) Ordinance 2017.
12 Carlyle Capital Corporation Limited (in liquidation) and others v. Conway and others (Royal Court, 4 September 2017).
13 Carlyle Capital Corporation Limited (in liquidation) v. Conway and others  GRC 014.
14 This is a customary law principle, particular to Guernsey's law. In trust law the Privy Council determined in Spread Trustee Co Ltd v. Hutcheson  UKPC 13, that it was analogous to the English law prudent investor test.
15 The case of Broadhead v. Spread Trustee Company Limited & Ors (Guernsey Judgment 46/2014) determined that the clock starts to run once the claimant has enough information that would make any reasonable person begin to investigate whether there had been a breach of trust. They would see that a loss has been incurred and have a sense that there was a real possibility (not a mere suspicion) that the loss had been caused by negligence on the part of the trustees.
16 Trusts (Guernsey) Law 2007, Section 63.
17 Carlyle Capital Corporation Limited (in liquidation) v. Conway and others  GRC 014.
18 The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc., (Bailiwick of Guernsey) Law 2000.