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									Retirement Annuity Trust Schemes (RATS)
Background                                                •     A lump sum of 30% of the value of the fund
                                                                can be taken on the date the pension
With only a limited number of retirement annuity
                                                                commences. There is no requirement to
contracts (RAC) and personal pension schemes
                                                                commence drawing an annuity at the time
(PPS) available in Guernsey, the popularity of
                                                                that the lump sum is taken.
RATS is growing rapidly. Basically a RATS is a
discretionary trust which acts as a self                  •     The trustees are able to invest in a wide
administered private pension scheme for                         range of asset classes.
individuals resident in Guernsey. RATS are very
flexible pension vehicles and are capable of              Eligibility
approval by both the UK and Guernsey Tax
authorities.                                              Both residents and non-residents of Guernsey are
                                                          eligible to join an approved RATS.
Guernsey pensions tax legislation was developed
further during 2011 with the aim of encouraging           Services provided by PKF (Channel
individuals to save towards their retirement. The         Islands) Limited
new regulations are effective from 1 January              •     Guernsey and UK compliance and planning
2011 and are included within these notes.                 •     Audit and accountancy
                                                          •     Specialist taxation and estate planning
Benefits                                                        services
•   As for Retirement Annuity Contracts, a                •     Payroll and outsourcing
    pension must be taken from a RATS some
    time between the member’s 50th and 75th
    birthday, however it is not necessary to
    purchase an annuity.
•   A member may take a loan from the RATS
    subject to certain conditions.

                                                                                                               To find out more please contact:

                                           PKF (Channel Islands) Limited PO Box 296 Sarnia House Le Truchot St Peter Port Guernsey GY1 4NA

                                              Tel: + 44 (0)1481 727927 Fax: + 44 (0)1481 710511 Email: info@pkfci.com Internet: www.pkfci.com

Frequently asked questions about RATS and              Trustees and intermediaries promoting
Retirement Annuity Contracts (RAC)/Personal            RATS must have an awareness of, and
Pension Schemes (PPS)                                  comply with, the provisions of the
                                                       Retirement Annuity Trust Scheme Rules,
1. Following the changes in rules relating to          2010 which were published by the Guernsey
   the approval of trustees, can a member or           Financial Services Commission in 2010 and
   a relative of a member be a trustee of the          came into force on 1 January 2011.
                                                    3. Can I transfer my Guernsey home into a
   Yes, but only if the trust deed specifically        RATS?
   provides that the trustees act by majority and
   the majority of the trustees are neither            Yes. Once in the RATS, occupation of the
   members of the scheme or relatives. This            property must be subject to a commercial
   does not apply with RAC/PPS which are               rent payable to the scheme. Such rental
   administered by insurance companies.                income will be exempt from liability to
                                                       Guernsey Tax in the hands of the trustees.
2. Can anyone be a trustee of a RATS?                  Such transfers are not possible with
                                                       RAC/PPS schemes.
   Yes, subject to 1 above. However, any
   trustee who is not a professional trustee is     4. Can I transfer my commercially let UK
   required to sign a Code of Practice issued by       property into a RATS?
   the Director of Income Tax. This certifies
   that the individual understands his role and        Yes. Note that the rental income will be
   responsibility as a trustee under the Trusts        subject to UK taxation. Again, such transfers
   (Guernsey) Law 1989. There is also an               are not possible with RAC/PPS schemes.
   overriding requirement that there must be at
   least two Guernsey resident trustees.            5. I run my own incorporated business. Can
   However, if a trustee of the scheme is an           I transfer the company shares into a
   independent professional trustee, one such          RATS?
   Guernsey resident trustee would be                  Yes, subject to a restriction. Where a
   sufficient.                                         member, together with any other member or
                                                       relatives owns more than 15% of the issued
                                                       share capital of the company, not more than
                                                       10% of the value of the pension fund can be
    invested in the company. Such transfers are            qualify as a QROPS, this minimum age must
    not possible with RAC/PPS schemes.                     be reflected in the RATS instrument.

6. Can I borrow funds from a RATS?                         At the time of writing, UK regulations
                                                           governing the approval of schemes such as
   Yes, provided the loan does not exceed 30%
                                                           QROPS are the subject of consultation and it
   of the total value of the fund and is subject to a
                                                           is anticipated that further restrictions will be
   commercial rate of interest. There is also a
                                                           applied, with effect from 6 April 2012, if
   requirement that any loan must be repaid
                                                           new schemes require approval as QROPS or
   before benefits commence to be drawn down.
                                                           existing schemes wish to continue to claim
   It is not possible to borrow funds from a
                                                           QROPS status. In anticipation of the
   RAC/PPS. The trustees would be required to
                                                           introduction of further restrictions in the UK,
   obtain adequate security for the loan.
                                                           the States of Guernsey is introducing
                                                           legislation that allows the establishment of a
7. I have a UK pension scheme and have                     new pension vehicle referred to as a “S.157E
   moved to Guernsey to work. Can I                        scheme”. Pension scheme administrators are
   transfer my UK scheme into a Guernsey                   required to apply to the Tax Authorities for
   RATS or RAC/PPS?                                        approval under the new legislation by 16
   Yes. However, some trustees may be                      March 2012. The change in status will have
   reluctant to transfer the value of protected            Guernsey tax implications and further advice
   rights and clearance from the trustees should           should be sought.
   be sought beforehand. Prior approval of the
   tax authorities to the transfer may also be          8. If I transfer my UK pension fund, which is
   required.                                               currently valued at £2m into a Guernsey
                                                           RATS or RAC/PPS, will I still be entitled
   It should be noted that with effect from
                                                           to draw down a quarter of the fund as a
   6 April 2006, following the introduction of a
                                                           tax-free lump sum, as permitted under
   simplified pension scheme tax regime in the
                                                           UK legislation?
   UK, the reciprocal arrangement was
   terminated. However transfers of pension                Yes. From 1 January 2006 lump sums paid
   funds from the UK are possible provided the             out of pension funds transferred into a
   RATS is registered with HM Revenue &                    Guernsey RATS will not be subject to the
   Customs as a Qualifying Recognised                      maximum tax-free limit which, under current
   Overseas Pension Scheme (QROPS).                        legislation, is £167,000. All pension funds
   Following a recent increase in the minimum              arising from contributions made in Guernsey
   age from which benefits can be drawn under              will continue to be subject to the tax-free
   UK pension scheme rules from 50 to 55, to               limit.
9. If I transfer my UK pension fund into a              guarantee that the funds in the scheme will
   Guernsey RATS or RAC/PPS, will the                   be sufficient to pay an annuity until your
   funds be afforded the same protection                death. Contrast this with an RAC/PPS where
   from a UK Inheritance Tax charge as is               an annuity will be purchased by the
   available to the UK pension fund?                    insurance company.
   Yes but this is a specialist area and requires
   specific advice depending on individual
                                                     13. When I commence to receive an annuity
                                                        from a RATS or RAC/PPS scheme, can I
   circumstances. You should contact PKF
                                                        pay the Guernsey tax due by instalments
   (Channel Islands) Limited for further
                                                        in June and December?
                                                        No. Other than the tax-free lump sum, any
10. Do I have to be retired before I can draw           benefits drawn from the scheme will be
   a pension from a RATS or RAC/PPS?                    subject to taxation at source under the
                                                        Employees Tax Instalment (ETI) Scheme.
   No. You can start to draw a pension at any
   time between the ages of 50 and 75 even if
   you are still working. Similarly, you do not
                                                     14. If I die, can the remaining funds in the
                                                        RATS or RAC/PPS scheme be used to
   have to draw a pension as soon as you retire.
                                                        provide a pension for my spouse?
11. Can I draw a tax-free lump sum but not              Yes. The terms of the Trust Deed or the
   draw a pension thereafter?                           pension contract may allow for the provision
                                                        of a pension for the surviving spouse.
   Yes. There is now much greater flexibility
   in relation to drawing benefits from the
   scheme and with effect from January 2011, it
                                                     15. Once the member and spouse have both
                                                        died, what will happen to any funds
   is no longer a requirement to draw an
                                                        remaining in the scheme?
   annuity at the time of drawing the lump sum.
                                                        Any funds used to purchase an annuity from
12. Do the RATS trustees have to buy an                 an insurance company that remain on death
   annuity from an insurance company                    will usually revert to the insurance company.
   before I start to draw benefits from the             If an annuity was drawn directly from the
   scheme?                                              RATS, any remaining funds will be subject
                                                        to a tax charge at the rate of 20%.
   No. Unlike RAC/PPS schemes which are
                                                        Thereafter, the remaining funds will be
   insurance company run schemes, an annuity
                                                        available to distribute to other beneficiaries
   style payment from a RATS can be drawn
                                                        as provided for in accordance with the terms
   directly from the funds in the trust subject to
                                                        of the Trust Deed. Contrast this with a
   a regular actuarial valuation of the funds.
                                                        RAC/PPS where the remaining fund reverts
   However, in these situations, there is no
                                                        to the insurance company.
16. If I die before drawing any benefits from        19. Is there a maximum contribution I am
   the scheme, will my pension fund be                   able to make each year?
   subject to a tax charge?
                                                        Prior to 2011, for individuals under the age
   No. In the case of a RATS the funds will be          of 40, the maximum contribution is £13,600
   treated as capital for tax purposes and will         per annum. For individuals who are 40 years
   not be subject to a tax charge if the trustees       old or more and not a member of an
   distribute the funds to other beneficiaries in       employer’s occupational scheme, the
   accordance with the terms of the Trust Deed.         maximum contribution is £20,000 per
   If the trustees start to pay a pension, for          annum.
   example to a surviving spouse, Guernsey tax
                                                        With effect from January 2011, the
   will be payable in the normal way and
                                                        restriction on the amount that can be
   thereafter, any remaining funds will be
                                                        contributed has been completely removed.
   subject to a tax charge at the rate of 20%.
                                                     20. Will I be entitled to tax relief for the whole
17. If I move abroad to a country other than             of my contributions?
   the UK can I transfer my RATS or
   RAC/PPS fund to my new country of                     Not necessarily. Prior to 2011, if you were
   residence?                                            under 40, you were entitled to tax relief on
                                                         your contributions up to 15% of your net
   Yes. However, on transfer to Jersey, Isle of
                                                         relevant earnings. For instance, if your net
   Man and Ireland, the fund will be subject to
                                                         relevant earnings were £50,000 and you
   a charge to Guernsey tax at the rate of 10%
                                                         contributed the maximum annual
   of the value of the fund. Transfers to
                                                         contribution of £13,600, you would have
   schemes in other jurisdictions may be subject
                                                         been entitled to tax relief of £7,500 (i.e.
   to a 20% tax charge.
                                                         £50,000 at 15%).
18. If I move abroad and have already started            If you were 40 years of age or over and not a
   to draw benefits, am I able to transfer my            member of an employer’s occupational
   RATS or RAC/PPS fund to my new                        pension scheme, you were entitled to tax
   country of residence?                                 relief on contributions up to 25% of your net
                                                         relevant earnings. For instance, if your net
   No. Once benefits are drawn, it will not be           relevant earnings were £60,000 and you
   possible to transfer the fund. It will continue       contributed the maximum annual
   to be treated as a Guernsey pension fund              contribution of £20,000, you would only
   subject to Guernsey taxation.                         have been entitled to tax relief of £15,000
                                                         (i.e. £60,000 at 25%).
   With effect from January 2011, tax relief is    22. I am not employed. Am I still able to
   available for all contributions up to a            make contributions into a RATS or
   maximum of £50,000 per annum. Tax relief           RAC/PPS?
   will be granted against all sources of
                                                      Yes, prior to 2011 there was a limit of
   assessable income and not just against net
                                                      £6,800 that could be contributed annually
   relevant earnings.
                                                      into a scheme. However, no tax relief was
                                                      available for the contributions. With effect
   Note that the same maximum allowance of
                                                      from January 2011 the limit has been
   £50,000 applies to a married couple as it
                                                      removed and tax relief is now available
   does to a single person.
                                                      against all assessable income, as noted in 20
21. If I do not contribute the maximum
   annual amount each year, can I carry
   forward the unused capacity and increase
                                                   23. I am currently a member of my
                                                      employer’s occupational pension scheme,
   my contributions in the following year?
                                                      can I still set up a RATS or RAC/PPS and
   Prior to 2011, provided you held a RATS or         make additional pension contributions?
   RAC/PPS throughout (although it was not
                                                      Yes, there is no restriction on setting up a
   necessary to have made contributions
                                                      RATS or RAC/PPS if you are already a
   throughout), it would be possible to carry
                                                      member of an occupational scheme. Prior to
   forward the unused capacity for up to 6
                                                      2011 tax relief for contributions to a RATS
   years. However, tax relief for the additional
                                                      or RAC/PPS was dependent on whether the
   contributions would only be available at the
                                                      individual had “relevant earnings”. These
   rates indicated in 20. above. With effect
   from January 2011, any unused capacity
   brought forward is irrelevant as the limit on          a. Income from employment where the
   annual contributions has been removed.                    individual is not a member of an
   There will be a facility to carry forward any             occupational pension scheme.
   unused tax relief under the new regime for             b. Income from self employment
   up to 6 years. For instance, an individual
   making contributions of say £10,000 in a               c. Income from employment where the
   year will be able to carry forward the unused             individual is a member of an
   relief of £40,000 (see 20 above) and increase             occupational pension scheme but will
   the tax relief available in a subsequent year             not receive the maximum benefits
   to £90,000.                                               permissible from that scheme at
                                                             normal retirement date.
   Occupational schemes may be final salary                  scheme contributions but would not receive
   schemes or money purchase schemes with                    maximum benefits he could still contribute
   “guaranteed target benefits”. The benefits                the maximum to a RATS or RAC/PPS of
   are generally calculated as a fraction of the             £13,600 per annum.
   member’s pensionable salary, multiplied by
                                                             This condition was removed with effect from
   the member’s years of service subject to
                                                             January 2011.
   limits imposed on the scheme by tax
   legislation. Maximum benefits would be
                                                        Contact Us
   1/60th of final remuneration for each year of
   service, subject to a maximum of 40/60ths or
                                                        If you would like further information please
   2/3rds of final remuneration.
                                                        contact André Trebert at
   In short, if an individual’s membership of an        andre.trebert@pkfci.com or on +44 (0) 1481
   occupational pension scheme was                      727927.
   insufficient to provide the maximum benefits
   on retirement i.e. 40/60ths of final salary, or if
   an element of his earnings were non-                 This document has been prepared as a general guide. It is not a
                                                        substitute for professional advice. Neither PKF (Channel Islands)
   pensionable (e.g. bonuses) he would have             Limited nor its directors or employees accept any responsibility for
   relevant earnings (and the whole of his              loss or damage incurred as a result of acting or refraining to act
   earnings were classed as relevant earnings).         upon anything contained in or omitted from this document.
                                                        PKF (Channel Islands) Limited is a member firm of the PKF
   If a member was able to receive maximum              International Limited network of legally independent firms and
   benefits on retirement he would have no              does not accept any responsibility or liability for the actions or
   relevant earnings.                                   inactions on the part of any other individual member firm or firms.

   With effect from January 2011, whether an
   individual has relevant earnings is now no
   longer considered and tax relief is available
   on all contributions subject to the limits
   referred to in 20 above.

24. What are the contribution limits if I am a
   member of an occupational scheme and
   also have a RATS or RAC/PPS?
   Contributions into an approved occupational
   pension scheme are not taken into account
   when calculating how much can be
   contributed to a RATS or RAC/PPS each
   year. As such, prior to 2011, where an
   individual made occupational pension

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