Jerset Retirement annuity trust scheme [RATS] – Introduction – These notes are intended to provide some background information in respect of retirement annuity trusts. They should not, however, be taken as a definitive statement of the law on any particular aspect, or in any particular case. The legislation at Article 131CA of the Income Tax (Jersey) Law 1961 prevails.
(a) The Jersey Retirement Annuity Trust Scheme (RATS) offers an alternative personal pension vehicle to Jersey residents. A RAT is for an individual who is ordinarily resident in Jersey for Income Tax purposes.
(b) These Practice Notes should be regarded as mandatory for trustees. Thus, a condition of approval under Article 131CA of the Income Tax (Jersey) Law, 1961, is that the trustees must document that they have read and comply with these Practice Notes.
(c) Trustees must be regulated by the Jersey Financial Services Commission under the Financial Services (Jersey) Law 1998 for the conduct of Trust Company Business.
2. Definitions
(a) ‘Annuity Equivalent’ – means a regular payment made to a member or to a Secondary Beneficiary under a RATS, calculated in the manner prescribed from time to time by the comptroller.
(b) ‘Article 131CA’ – means Article 131CA of the Income Tax (Jersey) Law, 1961, as amended.
(c) ‘Authorised Insurance Company’ has the same meaning as in Article 3(1) of the Income Tax Law.
(d) ‘Comptroller’ means comptroller of Taxes as defined in the Income Tax (Jersey) Law 1961.
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(i) ‘Member’ – means an individual member of a RATS who is the primary beneficiary, as defined under Article 131CA of the Income Tax (Jersey) Law, 1961, as amended.
(j) ‘RATS’ – means a Retirement Annuity Trust Scheme as defined in Article 131CA of the Income Tax (Jersey) Law, 1961, as amended.
(k) ’Secondary Beneficiary’ means the surviving spouse of a member.
(l) ‘Traditional Annuity’ – means an annuity payable on the life of an individual, purchased from an authorised insurance company carrying on in Jersey or in Guernsey the business of granting annuities on human life.
(m) ‘Trustee’ – means the trustee and / or such person or persons including bodies corporate who are authorised to act as trustees of a RATS.
3. Approval process
(a) The Income Tax (Jersey) Law, 1961 at Article 131CA allows for the approval of a Retirement Annuity Trust Scheme, provided that it shows to the comptroller’s satisfaction that:
contributions are paid into the scheme by an individual who is ordinarily resident in Jersey
the scheme is established under irrevocable trusts under Jersey Law and administered in Jersey
the sole purpose of the scheme is to make provision for benefits in accordance with the provisions of Article 131CA, however, the option to purchase a traditional annuity will remain
(b) Approval is subject to the conditions contained in Article 131CA and in appropriate cases, the comptroller may also place other conditions on the scheme as he sees fit.
(c) The comptroller requires a trust deed which has been properly executed to be submitted to the Taxes Office. It should contain, possibly as an appendix, the rules of the scheme and confirmation that the trust will conform to the requirements of the law.
(d) Any subsequent amendments to the trust deed or rules must be notified to the comptroller to confirm ongoing approval.
(e) A signed copy of these Practice Notes is also required before approval can be given.
4. The trustees’ role
(a) Jersey resident trustees
The trust must have 2 or more trustees or a corporate trustee. At all times the trustees must be Jersey resident and regulated to conduct trust company business under the Financial Services (Jersey) Law, 1998 and operate under the Trusts (Jersey) Law, 1984.
Members of Retirement Annuity Trust Schemes may not be trustees of the scheme, nor may their spouse or any other connected person.
(b) General duties
The trustees should ensure that they understand and comply with Article 131CA of the Income Tax (Jersey) Law, 1961, as amended.
(c) Contributions
The trustees will be responsible for the collection of all member contributions to the RATS. Details of all contributions should be prepared and submitted to the comptroller within 3 months of the end of the calendar year.
In line with existing rules, individual members may not exceed the annual contribution limits , as defined in Article 131CA (3) (g) (vi).
(d) Pension transfers
The conditions are the same as for Retirement Annuity Contracts and are contained at Article 131CA (4)(c) and 131CA (4) (d).
The option for members to purchase a traditional annuity from an authorised insurance company, if available when they retire, remains.
The trustees will be responsible for ensuring that all pension transfers are administered correctly and are only sent to and received from approved schemes, as permitted by the comptroller. All transfers must be correctly documented and reported to the comptroller as part of the trustees’ annual reporting requirements.
(e) Benefits
A member must take their accumulated benefits at some time between their 50th and 75th birthday. It is not, however, necessary to purchase a traditional annuity from an authorised insurance company and the annuity may be paid out of the RATS itself as an annuity equivalent.
The annuity equivalent must be calculated with reference to the separate guidance note: ‘Calculation of Annuity Equivalent’. This calculation must be completed by the trustees before the first annuity equivalent payment is made and no later than every third year, thereafter. The trustees must re-calculate the annuity equivalent, subject to Article 131CA (3) (g) (v), in the event that a member dies and a surviving secondary beneficiary opts for the RATS to remain in force. This is to ensure that rates applied are in line with the prevailing UK Government Actuary’s Department published tables.
In line with Article 131CA (3) (d) (i), a member may commute up to 30% of their accumulated benefits within their RATS, tax-free. This will be paid out by the trustees with notification sent to the comptroller. The right to a 30% tax free cash payment is dependent on the exercise by the primary beneficiary of up to three elections from the date the annuity equivalent first becomes payable until the date the annuity equivalent is first paid. The sums commuted following 2 or more elections cannot, when aggregated exceed the 30%.
(f) Reporting responsibilities
The trustees are responsible for reporting to the comptroller as follows and within the set timeframes:
Payments:
contributions: amounts should be declared within 3 months of the end of the calendar year
transfers from an approved source: amounts should be declared within 3 months of the end of the calendar year
Withdrawals:
commencement of payment (including tax free cash lump sum payment) of annuity equivalent – immediately
ongoing annuity equivalent payments – annually within 3 months of the calendar year end
one off withdrawals – ie transfers to other approved schemes to purchase a traditional annuity or a qualifying commutation of the fund on the grounds of triviality – immediately
Establishment of sub-trusts – where a RATS has been approved involving a master trust, the trustees must immediately notify the comptroller of the establishment of each underlying sub-trust, using the published Retirement Annuity Trust Scheme: Establishment Certificate. A separate certificate must used for each sub- trust
Annual accounts – the annual accounts of the RATS must be submitted to the comptroller, including the information required under payments and withdrawals above, within 3 months of the end of the calendar year. Where a RATS has been approved involving a master trust, the following minimum information must also be included, for each sub-trust:
member’s full name
member’s tax reference
member’s contributions to the scheme in the tax year of assessment, if any
member’s approved pension transfers in or out of the scheme in the tax year of assessment, if any
distributions from the scheme to the member in the tax year of assessment, if any
employer’s contribution to the members RAT in the tax year of assessment, if any
a scheme statement must also be provided to the member at least annually.
5. Investments
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(h) The following are suitable investments for a RATS:
cash deposits with any bank building society or other institution carrying on deposit taking business
securities or financial instruments traded on a recognised stock exchange
units in collective investment funds within the meaning of the Collective Investment Funds (Jersey) Law 1988 or Investments falling within paragraph 9 of Schedule 1 to the Financial Services (Jersey) Law 1998 (long term insurance)
(i) The following are prohibited investments for a RATS:
loans to members or connected parties
property both residential and commercial. Commercial property will be considered if part of a balanced portfolio where the property investment comprises of no more than 20% of the total individual’s RAT fund. Any requests for investment in property must seek prior approval from the comptroller
art
wines
vehicles, including classic and vintage cars
jewellery
gems
antiques
boats and yachts
furniture
stamp collections and rare books
any other tangible moveable property (for the avoidance of doubt, tangible moveable property is ‘things you can touch or move’)
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6. Taxation
(a) Personal:
When the annuity equivalent commences the trustees will be responsible for notifying the comptroller of the payments made to the member. The relevant amount of income tax will be collected via the individual’s annual Income Tax Assessment.
(b) Trustees:
The trustees must deduct tax at the standard rate, before any annuity equivalent payments are made to non Jersey residents. The trustees must collate and remit any deducted tax together with their annual return to the comptroller.
Trustees must deduct tax at half the standard rate and remit the tax deducted to the comptroller in respect of all qualifying commutations on the grounds of triviality.
(c) Pre commencement of benefits – on the death of the member, no tax shall be charged on the trustees of so much of one or more lump sums paid to the secondary beneficiary or to the primary beneficiary’s estate that does not exceed the aggregate of all lump sums to which the secondary beneficiary is entitled under 131B contracts and 131CA trusts or £1,800,000 whichever is the smaller.
(d) Post commencement of benefits – on the death of the member, the surviving secondary beneficiary (if any) will have the following options:
allow the pension fund to continue (maintain the status quo) and on the demise of the secondary beneficiary, the remaining pension fund will pass to the secondary estate after deduction, by the trustees, of the standard rate of income tax (currently 20%)
opt for a lump sum to be paid, representing the remaining pension fund, after deduction, by the trustees, of half the standard rate of income tax (i.e. 10% at present)
(e) The change of status is based on the exercise of the option to receive a tax free cash sum or opt for an annuity equivalent. This can be exercised at any time between the ages of 50 and 75
(f) In the event of there being no surviving secondary beneficiary, the accumulated pension fund will pass to the member’s estate after the deduction of tax, by the trustees, at the standard rate of income tax (currently 20%).
(g) If on commencement of benefits the primary beneficiary elects to receive a commutation of the whole of the fund:
the age of 60 has been attained and;
the agregate of the value of the fund at the time of the election and all lump sums that the individual has previously elected to receive under all schemes approved including occupational schemes, retirement annuity contracts and retirement annuity trusts does not exceed £30,000
the primary beneficiary can elect to commute the whole of the fund subject to a tax charge of 10%.
(h) In cases of serious ill health prior to the commencement of benefits, the scheme may allow for the primary beneficiary to elect to receive a lump sum by way of commutation of the whole of the fund. Serious ill health in this respect is where a registered medical practitioner certifies that the life expectancy of the individual is less than 12 months.
7. General matters
(a) Exemption from Jersey tax applies to only investment income. Exemption would not, for example, extend to the following:-
profits from the trade of investment dealing
gains from transactions in certificates of deposit
(b) The following prohibitions must be written in to the trust deed:-
the trustee cannot borrow funds on its behalf and funds may not be loaned to the member or any person connected to the member
investment transactions between the member (or any person connected with him / her) and the fund are prohibited
assets of the fund are not to be used for the personal benefit or enjoyment of the member
the fund must not invest in a purchased life annuity
8. Anti avoidance
Any transaction or series of transactions made wholly or mainly for the purpose of avoiding tax may lead to the anti avoidance provisions of Article 134A being invoked
9. Declaration
Scheme name: Income Tax reference:
I / we confirm that I / we have received a copy of the Practice Notes relating to Retirement Annuity Trust Schemes and have read and noted its contents and agree to act in accordance therewith and with any subsequent changes to the Practice Notes.
I / we also confirm that I / we have read the relevant sections of the Trusts (Jersey) Law 1984 and I / we are regulated by the Jersey Financial Services Commission to conduct Trust Company Business pursuant to the Financial Services (Jersey) Law 1988.
Download retirement annuity trust establishment certificate (size 15kb)
http://www.gov.je/TaxesMoney/IncomeTax/Pension/Pages/RetirementAnnuityTrustScheme.aspx
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