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Guernsey Press Business Panel – Can I take tax-free lump sum upon retirement?

When I transferred out of my employer’s final salary (defined benefits) pension scheme into a retirement annuity trust, I was told I would be able to take a 30% tax-free lump sum upon retirement. Now I’ve been told there is a limit. What are the rules?

Sean Gillease, business development manager, Sovereign Trust (Channel Islands) Ltd, replies: Upon reaching minimum retirement age within a retirement annuity trust, which is age 50 for a Guernsey resident member, an individual is entitled to a pension commencement lump sum of up to 30% of the RAT value.

Your PCLS can be paid without any tax deduction if it does not exceed £194,000* (i.e. total plan value of circa. £650,000 or less if you opt for a 30% PCLS). For any PCLS paid which exceeds this amount, the surplus amount would be subject to tax at 20%. It is important to note that the tax-free limit does not apply to anyone whose RAT consists wholly of non-Guernsey sourced pension benefits, for example funds transferred from a UK-registered pension scheme into a RAT. To help illustrate this, if you have £500,000 in your RAT and you request to take your maximum PCLS entitlement, your trustees would calculate 30% of £500,000, which equals £150,000 and as this amount does not exceed the maximum tax-free lump sum entitlement they would be able to pay this to you in full without deducting any tax. If, however you have £1m. in your RAT and you request to take your maximum PCLS entitlement, your trustees would calculate 30% of £1m. which equals £300,000. In this scenario only £194,000 would be tax free and the balance of £106,000 would be taxable at 20%. This equates to tax of £21,200. You would therefore receive a net amount of £278,800, being the requested £300,000 less tax of £21,200.

To summarise, if you are lucky enough that your RAT value is high enough for your PCLS of up to 30% to exceed the tax-free entitlement of £194,000, then you would be subject to tax on the surplus amount paid to you above this level.

* The maximum tax-free PCLS entitlement is currently set at £188,000 by the Guernsey Income Tax Office, however this is subject to change.

Read the full Business Panel article here.

Sean Gillease


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Sovereign Trust (Gibraltar) Limited
Tel: +350 200 76173