Select a region
Jersey has been welcoming - and encouraging - applications from high-net-worth individuals to come and live in the island for more than 50 years.
But the rules for them to receive 'entitled' status have changed a great deal since the scheme began. In 1972, the minimum tax requirement was £3,000. Today, it stands at £145,000.
Considered the ‘architect of finance industry’, former Economist Colin Powell considered the history of the former 1(1)k scheme, and where it might go next back in 2010.
Here, Express delves into the detail of his report to the Treasury Minister and looks at where we are now with the scheme...
In the 1970s, the States Assembly adopted new Housing Regulations which meant those wishing to retire or move to Jersey could only buy properties in the island if the Housing Committee was content it could be justified on “social or economic grounds”. Regulation 1(1)k was born.
In the first years after its introduction, the controls were not “too tightly” applied.
The minimum tax requirement was of £3,000 in 1972 and £4,000 in 1973. In the latter year, 66 consents were granted under the regulation.
Pictured: In the mid 1970's, the number of 1(1)ks allowed in the island every year was limited at 15.
In 1974, the Policy Advisory Committee and the Policy and Resources Committee each published reports on immigration policy and the restraint of population growth.
That year, it was decided the number of 1(1)ks allowed in the island should be limited at 15 - in addition to the “replacement” of those who had died or left the island - with a tax requirement of £10,000 along with restrictions over the type of property that could be purchased as well as over the redevelopment and extension of properties.
Five years later, the Policy Advisory Committee submitted a new report, which the States Assembly approved, recommending a greater degree of restraint over the number of consents granted. The number was reduced to 10 a year with a tax requirement of £20,000.
In January 1987, the number of consents to be granted was significantly reduced from 10 to 15 a year to five.
It stayed at this level for a couple of years with the Housing Committee taking into consideration more factors, such as the extent and nature of assets, the “degree of certainty” with which a substantial income liable to local tax would arise and the likelihood of involvement in local business interests.
The Committee also considered the applicant’s business, their age and personal background, as well as the number of children likely to establish housing qualifications.
Meanwhile, the tax requirement was increased to £50,000 at the end of the 1980s, followed by a second increase to £100,000 into the 1990s.
Pictured: In the early 1990's, the States Assembly supported calls for a more flexible policy.
In the early 1990s, the island experienced a recession. Thus, the States adopted a proposition from the Policy and Resources Committee to introduce a more flexible policy for 1(1)ks, with the number of consents no longer limited to five per year.
In its 1993 Budget Report, the Chief Adviser wrote: “In the past this policy was designed to limit the pressure on the island from the demands those immigrants placed on the construction industry and other service trades in the Island which, in conditions of overfull employment, could only be satisfied by further immigration.
“In the current climate however the impact of the purchasing power of those concerned, and in particular the support given to the employment of local persons in the construction industry, retail distribution and service trades such as vehicle maintenance, should be more welcome.”
The Chief Adviser also referred to criticism over “the selection of new immigrations according to their wealth”, noting the same process for business was “readily accepted”.
Given the desire to benefit from the granting of consents and the wish to limit the number of 1(1)ks in the island, the Chief Adviser said “the higher the likely taxable income the greater the net advantage to the island”.
At the time, an applicant needed to have sufficient assets to yield an income liable to Jersey tax of £500,000 or more per annum.
The Chief Adviser noted that, apart from one or two examples, in almost all cases the contribution made to tax revenues had “significantly exceeded” the one expected when consent was granted.
Pictured: By the end of the decade, a tougher policy on 1(1)ks was reintroduced.
At the end of the 1990s as the economy picked up and the immigration pressures recurred, a tougher policy on 1(1)ks was reintroduced.
In 1998, the Housing Committee considered the tax benefits received by the island from the consents granted under Regulation 1(1)k.
Out of the 21 consents granted between 1992 and 1995, only one resident had 'underperformed'.
In total, for the year of assessment in 1996, the 21 1(1)k residents had paid £2.5m in tax.
Of those who had taken up residence in 1996, and had finalised their 1997 tax, all had paid sufficient tax apart from one who was about 10% below target.
The Housing Committee was advised at that time that there were no grounds for withdrawing a consent, as it was granted for a property, but that a person’s tax contribution could be reviewed if they applied to move to another property.
The Committee was also informed that 1(1)k residents were not legally required to make the tax requirement, which was then £200,000 per year, but that the majority were keen to meet the obligations and that any exceptions were reported to the Comptroller of Income Tax.
The Committee noted that the minimum annual income which each applicant undertook to meet was expected to be adjusted upwards each year in line with the increase in the Retail Prices Index (RPI) plus 2.5%.
Pictured: Over the years, tax requirements have been used to limit the number of applications.
As Mr Powell wrote, the tax requirement was used as a “rationing tool” throughout the 1970s, 1980s and 1990s, with the idea that the requirement should be set to achieve the number of immigrants the States wished to have.
Those who were granted consent were therefore those most likely to make the biggest contribution to the Island’s tax revenues. “The principle was that if only 5 consents were to be granted they should be the best in terms of the tax contribution to be made,” Mr Powell wrote.
He pointed out that “misleading language” had been to describe the policy over the same period, arguing that no “deals” had been struck or agreements made so that someone would paid less than 20% on their income that was liable to tax.
“All applicants were required to show that they would have sufficient income liable to Jersey tax at 20% to more than meet the minimum requirements set,” he said.
“All applicants had to satisfy the Housing Committee, with advice from the Economic Adviser and subsequently the Chief Adviser, that they would have sufficient taxable income to meet the requirements. The objective was also to seek to establish a degree of certainty by looking for a sufficient capital base which applying a conservative rate of return yielded a sufficient income liable to Jersey tax.
“Applicants whose income was in the form of employment or trading income which was susceptible to the influences of trading conditions were unlikely to obtain a consent.”
He noted that at the time, the majority of the applications sought to avoid a capital gains tax liability in the UK when retiring from business and selling their businesses or property assets.
As such, the housing consents issued relied upon a written undertaking from the individual applicant that they would dispose of their assets and create the taxable income required, which happened in all but a few cases.
In the case of individuals who had placed a substantial proportion of their assets in an offshore trust, a letter of undertaking from the trustees to pay enough from the trust to the individual to meet the Housing Committee’s minimum tax requirements was required.
Pictured: "On average the figures for tax in 2007 showed that the majority of those granted consent were more than meeting their undertakings," Mr Powell said.
Individuals who moved to the island in the 1970s faced the requirement of £3,000 to £4,000 of tax initially and £10,000 subsequently. But as many moved to the island after making capital gains, they were paying tax “of little if any more than that promised at the time” 30 years later.
However, tax figures for 2007 showed that 30 1(1)k's who were granted consent in the 1970’s produced tax of £1.75m, an average of £58,000 per individual – “a sum in tax significantly greater than that which they gave an undertaking to do when they were first granted consent” Mr Powell said - whilst there were only seven paying less than £10,000.
The tax figures for 2007 showed that the 34 1(1)ks granted consent in the 1980s – for whom the tax requirement increased to £20,000 and subsequently to £50,000 at the end of the decade - produced tax of £1.34m, an average of some £40,000 of tax per individual, ahead of the undertakings given.
Of the 34, there were 12 who were possibly falling short of their initial undertaking.
For the 38 granted consent in the 1990s, with an undertaking between £150,000 and £200,000 at the end of the decade, figures show they produced tax of £3.77m, an average of £100,000 per individual.
About half of those concerned fell short of the undertaking but Mr Powell noted the economic conditions may have had an effect on their taxable incomes.
For those granted consent in the 2000s, the tax figures for 2007 show an average tax payment for the 14 concerned of £120,000.
Mr Powell said there was no reason to suppose the undertakings had not been given in good faith in the majority of cases, noting that it was to be expected that some would perform better than planned whilst others would see their income reduce below the agreed level.
“The fact that on average the figures for tax in 2007 showed that the majority of those granted consent were more than meeting their undertakings should be seen as indicative of the success of the policy pursuit over the past 40 years,” he wrote.
He argued that it would be wrong to use individual cases as evidence of a “general failure” on the part of those granted consent under 1(1)k and suggested that the reasons for failing to meet the requirement should be taken into account.
“For example, it is known that some granted consent in the early years were Lloyds names who suffered from major calls on their assets as a result of major insurance claims; others suffered from stock market collapses as in 1987; and one or two saw their capital reduced through divorce settlements,” he wrote.
Pictured: The minimum price of a home for those wishing to obtain their ‘entitled’ status increased from £1.75m to £2.25m in 2021.
Writing in September 2010, Mr Powell said in recent years the policy had become “more encouraging” of 1(1)k applicants with the reliance on undertakings replaced by a statutory requirement whereby those granted 1(1)k status were taxed at the following rates:
Between 2010 and 2015, there were 156 applications, 148 of which were approved. At the end of 2019, there were 169 1(1)ks living in the island who paid a total of £21m in tax, an average of £124,260 per individual.
Between January and July 2021, there were 18 applications – 17 of which were approved – against nine in the same period in 2020.
The tax regime for High Net Worth individuals was reviewed in October 2013. The then-Minister for Treasury and Resources, Senator Philip Ozouf, noted how changes to the tax system in July 2011 – which included rising the minimum contribution to £125,000 - had been followed by the number of licences granted in 2012 reaching a four-year high.
The current criteria for High Value Residency states an individual must be able to generate an annual minimum tax contribution of £145,000 with a “comfortable and sustainable, annual worldwide income” of over £725,000 and a personal wealth of over £10m.
Previously, the minimum price of a home for those wishing to obtain their ‘entitled’ status was £1.75m - a figure set in 2011, which was re-valued in 2021.
As the island faces a growing housing and population crisis, many - including the current Housing Minister and, reportedly, the Economic Development Minister - are now questioning whether the scheme needs a further tweak, whether in terms of the properties individuals might buy or capping numbers. However, it's likely that any large changes will be brought forward by a new Government after June, rather than before the election.
Comments
Comments on this story express the views of the commentator only, not Bailiwick Publishing. We are unable to guarantee the accuracy of any of those comments.