The use of personal investment companies in the island bothered several election candidates who called for the practice to be stopped, as it has been in Jersey.
Some individuals are known to have set up personal investment companies and been making non-commercial shareholder loans to those companies so that they can draw down on this through loan repayments, and pay no tax.
The Policy & Resources Committee has signed off for the political term by agreeing the change to a statement of practice in the tax law.
It now states that repayments of non-commercial shareholder loans are classed as dividends, where the company has income taxed at less than 20%.
This will require the company to report and pay tax on behalf of the shareholder at 20% on these repayments.
‘When it comes to income tax, we have to ensure that everyone is paying their fair share, including businesses and individuals,’ said P&R president Lyndon Trott.
‘But we are even more acutely aware of this at a time when we as a government have a £44m. deficit.
‘This isn’t the panacea for our financial woes, but we’re taking action to close this loophole to make sure that we’re collecting tax that belongs to the public purse to contribute towards essential services that benefit our community.’
The committee has also agreed to amend the 1978 Income Tax Law in the 2026 Budget so that repayments of non-commercial shareholder loans are classed as dividends.
‘This will ensure that the relevant tax is reported and paid by the company in a timely manner,’ it said.
Changes have already been made to the 2024 company tax return to ensure that such loan repayments are easily identified to enable the Revenue Service to make targeted enquiries.
Several candidates referenced the loophole in their manifestos for the election.
Future Guernsey, which drew up a manifesto leaning heavily on local expertise, including tax experts, was among those giving it the highest profile.
It pledged to scrap the ability to use non-commercial shareholder loans to defer tax due on income rolled up in Guernsey companies taxed at the standard rate of 0%.
Future Guernsey board member Mike Leonard wrote in the Guernsey Press that the arrangements were entirely legal and could even attract people to the island, but while it was ‘fine for them to benefit from our inheritance and capital gains tax-free status, income should be fairly taxed’.
It is unclear how much the move will realise for the exchequer each year.
You need to be logged in to comment. If you had an account on our previous site, you can migrate your old account and comment profile to this site by visiting this page and entering the email address for your old account. We'll then send you an email with a link to follow to complete the process.