The Private Wealth & Private Client Review: Guernsey
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.
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.