Some wealthy residents having problems paying their tax

Wednesday 28 December 2016

A review into Jersey’s tax regime for very wealthy residents says some of the Island’s super-rich are having problems paying their tax.

The report notes: "...some (mainly longer-standing and non-economically-active) HVRs [High Value Residents] from earlier regimes (i.e. prior to the July 2011 regime) cannot now, with diminishing returns on their accumulated wealth, generate sufficient income to meet their expected annual minimum income tax contribution."

When the scheme to attract wealthy residents was originally set up in the 1970s the super-rich were dubbed 1(1)(k)s because of how they were classified under the housing laws.

66 wealthy residents were given permission to live in the Island in 1973. At the time they had to pay a minimum of £4,000 in tax. Over the years the number of wealthy residents allowed in has steadily dropped from 15, to 10, to 5 – although the number is now going back up again. And the minimum amount of money they have to pay has gone up. By the end of the 1990s it was £100,000,  and it now stands at £125,000, with a proposal to be brought forward next year to increase that to £145,000 for those arriving after 2018. 

A States report of 2010 reviewing the history of the policy noted that on average the 30 1(1)k’s granted consent in the 1970’s were paying around £58,000 a year – that’s more than they had promised, and that although seven of those were paying less than £10,000, it was still more than promised.

The latest report notes: "...invariably [the reason some HVRs are having trouble paying their taxes] is due to reduced circumstances (e.g. poor investments), changes in personal circumstances (e.g. retirement, redundancy, divorce) or, with changing market conditions, they simply cannot achieve the levels of return on their remaining wealth. Where this arises, the Taxes Office will investigate such cases to satisfy itself that the HVRs are correctly returning their true levels of income."

What the report doesn’t say is how many wealthy residents are finding themselves "financially challenged" or how much less in tax they’re paying than was predicted.