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UK Pensioners Dealt Further Blow In Guernsey RATS Case

Tuesday, August 14, 2012

A British couple that received incomplete tax advice in relation to a transfer of pension entitlements to Guernsey retirement annuity trust scheme (RATS) have been dealt a further blow in a recent ruling from the UK's Upper Tribunal, which agreed that interest should be imposed on top of substantial income tax liable under an earlier 2010 ruling.

In 2010, old-aged pensioners Neil and Megan Gretton lost a tax case relating to a transfer of GBP231,000 from a UK pension scheme to a Guernsey RATS, exposing the couple to an income tax claim worth GBP86,000.

The case related to the Gretton's membership of the Scottish Equitable Personal Pension Scheme. Acting on the advice of their financial adviser, funds held for them by Scottish Equitable were transferred to a RATS established in Guernsey for their benefit.

Under the relevant Guernsey regulations, to be eligible to join such a scheme, the person concerned had to become resident in Guernsey. Acting on incorrect advice, Mr and Mrs Gretton purported to meet this requirement by acquiring the lease of a property in Alderney, part of the Bailiwick of Guernsey, but they never actually took up residence there.

The Tribunal said the adviser failed to take account of relevant UK conditions, set out in practice note entitled Pension Schemes Office PS 121, which only allows such a transfer to occur free of tax where an individual moves from the UK to Guernsey or vice versa to take up employment. Mr and Mrs Gretton had no intention of taking up employment in Guernsey, the Tribunal said, but their advisers confirmed to Scottish Equitable that the conditions for a transfer were met and accordingly the transfers were made on the strength of that representation.

The conclusions of an enquiry by the UK tax authority, HM Revenue and Customs (HMRC) into the transfers were that the pension fund transfers did not meet the requirements of the reciprocal agreement between the UK and Guernsey. As a result, the transfers breached the rules of the Scottish Equitable Scheme which did not permit transfers to be made unless they were to a scheme approved approved by the HMRC, a condition that would have been met had the terms of the reciprocal agreement been satisfied.

In addition to seeking to charge interest on the tax so assessed, HMRC sought to impose penalties equivalent to 45% of the tax payable under section 95 of the Taxes Management Act 1970 (TMA) on the basis that Mr and Mrs Gretton were negligent in delivering incorrect tax returns in the mistaken belief that the terms of the reciprocal agreement had been met.

In the original ruling, the First-tier Tribunal found that Mr and Mrs Gretton had not been negligent on the basis that they had reviewed the relevant explanatory notes issued in the UK and Guernsey and had contacted the Guernsey authorities to clarify the position. The First-tier Tribunal found that they had made an honest mistake in focusing purely on the Guernsey requirements and not considering PS 121, which their own adviser had not considered before the representation as to the UK conditions having been met had been given to Scottish Equitable.

Consequently, the First-tier Tribunal concluded that the determination to impose the penalties should be set aside, a course of action that was clearly open to it by virtue of section 100 of the TMA, but it went further, stating in paragraph 89 of its decision “that 35 there should be no penalties or interest, for the reasons given above, in the circumstances.”

In the latest ruling, the Upper Tribunal agreed with HMRC that the First-tier Tribunal erroneously granted exemption from interest liability; the decision exposing the couple to substantial interest liability.

The Upper Tribunal concurred that the First-tier Tribunal did have the jurisdiction to decide that no interest would be payable. This is on the basis that Section 86 of the TMA provides that:

  • "(a) Any amount on account of income tax which becomes due and payable in accordance with section 59A(2) of this Act and;
  • (b) any income tax or capital gains tax which becomes due and payable in accordance with section 55 or 59B of this Act,

Shall carry interest at the rate applicable under section 178 of the Finance Act 1989 from the relevant date until payment”.

HMRC successfully argued that the use of the word 'shall' had been used to indicate that there is no discretion as to whether interest should be applied to any amount of tax paid after the due date, further supported by the fact that the statute provides no right of appeal against the application of interest in such cases.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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