Income Tax (Amendment No.44) (Jersey) Law 201-: Lodging

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A decision made on 17 July 2014:

Decision Reference: MD-TR-2014-0077
Decision Summary Title:	2015 Budget – Income Tax (Amendment No. 44) (Jersey) Law 201-		Date of Decision Summary:	15 July 2014
Decision Summary Author:	Director of Tax Policy		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title:	2015 Budget – lodging of Income Tax (Amendment No. 44) (Jersey) Law 201-		Date of Written Report:	15 July 2014
Written Report Author:	Director of Tax Policy		Written Report : Public or Exempt?	Public
Subject: 2015 Budget – Income Tax (Amendment No. 44) (Jersey) Law 201-
Decision(s): The Minister approved the Income Tax (Amendment No. 44) (Jersey) Law 201-to be lodged “au Greffe” on Friday 18 July 2014. The Minister further decided to lodge a draft Act of Declaration so that the Legislation may have immediate effect.
Reason(s) for Decision: The proposed changes to the tax rules relating to pensions and pension schemes are to be lodged was part of the 2015 Budget.
Resource Implications: There are no financial or manpower implications associated with proposed changes outlined in Income Tax (Amendment No. 44) (Jersey) Law 201-.
Action required: The Greffier of the States is requested to lodge “au Greffe” the Income Tax (Amendment No. 44) (Jersey) Law 201-, as attached to this decision, on Friday 18 July 2014 with a request for debate on 22 September 2014.
Signature:		Position: Senator P F C Ozouf, Minister for Treasury and Resources
Date Signed:		Date of Decision:

Income Tax (Amendment No.44) (Jersey) Law 201-: Lodging

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Treasury and Resources

Ministerial Decision Report

Budget 2015 – lodging of Income Tax (Amendment No. 44) (Jersey) Law 201-

Purpose of Report

The purpose of this report is to obtain the permission of the Treasury and Resources Minister to lodge Income Tax (Amendment No. 44) (Jersey) Law 201- “au Greffe”.

Background

Alongside the 2014 Budget a consultation document was issued regarding proposed changes to the tax rules relating to pensions and pension schemes. The changes outlined in the consultation document sought to achieve the following aims:

simplification of the tax rules;
modernisation of the tax rules – including, in particular, the introduction of flexible retirement in the context of occupational pension schemes; and
achieving greater consistency between the tax rules applying to occupational pension schemes and personal pension schemes, and between the tax rules applying to different forms of personal pension schemes, such that the tax incentives to transfer funds between pension schemes are minimised

The overwhelming majority of respondents to the consultation were supportive of the general aims of modernisation and simplification, but they also challenged the initial proposals and identified different options. Having reviewed the consultation responses, a Report was presented to the States on 22 May 2014 which summarised the consultation responses and outlined the changes that would be made to the initial proposals. The key changes to the initial proposals outlined in that Report were:

allowing pension schemes greater flexibility over the payment of tax-free lump sums;
allowing individuals to access the flexibility of approved drawdown contracts irrespective of whether they have already take a tax-free lump sum from their pension scheme; and
removal of the proposed caps on tax-free lump sum payments

The 2015 Budget contains the amendment to the Income Tax Law necessary to introduce the new tax rules.

Proposal

Income Tax (Amendment No. 44) (Jersey) Law 201- rewrites Part 19 of the Income Tax (Jersey) Law 1961 to create a modern and flexible set of tax rules for pensions and pension schemes. The main changes proposed to the existing tax rules are outlined below:

members of occupational pension schemes will no longer be required to retire before being able to draw a pension from their pension scheme;
occupational pension schemes with members in Jersey and one or more other jurisdictions will be able to seek approval in Jersey for just the part of the scheme relating to the Jersey based members;
Retirement Annuity Trust Schemes (“RATS”) will be renamed as Retirement Trust Schemes;
non-residents individuals will be allowed to contribute into Retirement Trust Schemes;
pension schemes will be able to allow a person suffering from serious ill health to commute their pension fund at any time;
pension schemes will have much more flexibility over how they choose to pay out the 30% tax free lump sum available from approved Jersey schemes;
where a lump sum payment from an approved Jersey scheme is taxable (e.g. a lump sum paid following the death of the pension holder where the pension holder had already commencement benefits) it will be taxable at the rate of 10%, deducted by the scheme manager from the lump sum before it is paid;
a much wider range of international pension fund transfers, both to and from Jersey, will be permitted;
individuals will be able to access the flexibility of drawdown contracts where they have already taken a tax free lump sum from their pension scheme; and
the introduction of a potential benefit-in-kind for pension contributions made in the context of owner managers

Reason for Decision

With Jersey’s aging demographic, it is vitally important that the tax rules applying to pensions and pension schemes are fit for purpose. However it has become apparent that our tax rules have not kept pace with modern society and are now lagging behind those applied in comparable jurisdictions. In particular the existing rules can force individuals into making an all-or-nothing decision between continuing in employment and retirement; whereas the tax rules should not discourage individuals from remaining in the workforce for longer periods of time.

Furthermore the existing tax rules that apply to pension schemes are lengthy, complex and difficult to understand; they should be simplified and consolidated so that they are easier to understand. Greater understanding should encourage more people to make sufficient savings for their retirement.

Resource Implications

Financial: it is anticipated that the proposed rule changes should have no financial implications.

Staffing: no implications.

Report author : Deputy Director of Tax Policy	Document date : 16/07/2014
Quality Assurance / Review : Business Manager	File name and path: L:\Treasury\Sections\Corporate Finance\Ministerial Decisions\DSs, WRs and SDs\2014-0077 - Income Tax Amendment No.44\WR - lodging Income Tax Amendment No.44 (16-07-14).docx