Guernsey

Tax-deferred employer plans

Guernsey employers commonly provide occupational pension schemes regulated by the Guernsey Financial Services Commission (GFSC). The States of Guernsey also provides a Social Insurance scheme funded by employer and employee contributions, which covers retirement pensions and other benefits. The exemption is available only to an ‘eligible individual’ under §5.02: someone who is compliant (or comes into compliance) with U.S. income-tax filing and has reported the plan’s contributions, earnings, and distributions as income to the extent U.S. law requires; a participant who never reported plan earnings cannot rely on it until they do.

The Social Insurance scheme is a government-operated pay-as-you-go system and is generally not a trust under Treas. Reg. §301.7701-7. Private occupational pension schemes, however, typically hold assets in trust arrangements administered by GFSC-regulated trust companies. Under §301.7701-7, these are foreign trusts: they are administered in Guernsey with no U.S. court exercising primary supervision.

Guernsey is a Crown Dependency, not a sovereign state, and is not covered by the U.S.–UK income tax treaty; there is no separate U.S.–Guernsey income tax treaty. Rev. Proc. 2020-17 does not require a treaty, so this does not by itself disqualify a Guernsey workplace pension. Whether it qualifies instead depends on whether it independently satisfies the revenue procedure's conditions (including local tax treatment, contribution limits, withdrawal restrictions tied to retirement age, disability, or death, and, for employer-maintained plans, nondiscrimination), which requires plan-specific analysis.

Since 2024 the Secondary Pensions (Guernsey) Law, 2022 has required employers, phased in by size, to enrol eligible employees in a qualifying secondary pension, so more U.S. persons working in Guernsey now hold trust-based pensions.

Absent a qualifying exemption, U.S. participants in Guernsey pension trusts file as the note at the end of this section explains for a plan an employer contributes to.

For a plan an employer contributes to, a trust holding it is generally a nonexempt employees’ trust described in §402(b). §6048(a)(3)(B)(ii) excepts transfers to §402(b), §404(a)(4), and §404A trusts from Part I, the participant’s own contributions included, and §679 does not make the participant the owner (see the Reporting Guide’s employer-plan section). Payouts the participant reports as compensation income are excepted from Part III. If the participant’s own contributions ever exceed the employer’s, the participant is treated as the owner of the part those contributions fund (Treas. Reg. §1.402(b)-1(b)(6)), reports it on Part II and Form 3520-A each year it is owned, and is taxed on its income each year. In that count, what the participant chose to put in, salary sacrifice included, is the participant’s, and anything the plan’s rules required taken from pay is the employer’s, as the IRS chief counsel read a national retirement fund in 1997. The rest is taxed when it vests and, after that, when paid out (§402(b)(1), (2)).

Trust law framework

Guernsey trust law is codified in the Trusts (Guernsey) Law 2007, which replaced the earlier 1989 legislation. Like Jersey, Guernsey is a Crown Dependency with its own legal system rooted in Norman customary law, though its modern trust legislation draws on English trust concepts. The 2007 law is a comprehensive statute that governs trust creation, administration, variation, and termination.

Guernsey does not impose income tax on trusts where neither the settlor nor the beneficiaries are Guernsey-resident (the standard international trust). There is no U.S.–Guernsey income tax treaty. For U.S. tax purposes, Guernsey trusts are foreign trusts under Treas. Reg. §301.7701-7.

Common structures and purpose trusts

Guernsey is used for discretionary trusts, fixed-interest trusts, reserved powers trusts, and purpose trusts. The Trusts (Guernsey) Law 2007 expressly permits non-charitable purpose trusts, which are enforced by an enforcer appointed under the trust instrument.

Guernsey is also a significant jurisdiction for investment fund structures, captive insurance, and private wealth management. Many structures involve a Guernsey trust holding shares in a Guernsey-incorporated company or cell company (protected cell companies, or PCCs, and incorporated cell companies, or ICCs, are important Guernsey vehicles).

The U.S. classification analysis is the same as for other offshore trust jurisdictions: the grantor trust rules under IRC §§671–679 determine whether the U.S. person is the owner, and the trust's classification as foreign is determined under Treas. Reg. §301.7701-7.

Distinctions from Jersey

Although Guernsey and Jersey are both Channel Islands Crown Dependencies, their trust laws are distinct statutes with different provisions. The Trusts (Guernsey) Law 2007 includes specific provisions on forced heirship (the trust is valid notwithstanding foreign forced heirship rules), firewall provisions (limiting the effect of foreign court orders on the trust), and the duration of trusts (the 2007 Law abolished the perpetuity period, so a Guernsey trust created after it may continue indefinitely; trusts created before the Law remain limited to 100 years).

Practitioners should not assume that a legal analysis for a Jersey trust applies equally to a Guernsey trust, or vice versa. The differences can be material for U.S. tax classification and reporting purposes.

Penalties and practical notes

The standard §6048 reporting framework applies: Part I for transfers, Part II and Form 3520-A for U.S. owners, Part III for distributions. The same obligations apply to U.S. participants in Guernsey workplace pension trusts.

Penalties under §6677(a) are the greater of $10,000 or 35% of the gross reportable amount for Parts I and III. Under §6677(b), the penalty for Part II and Form 3520-A is the greater of $10,000 or 5% of the gross reportable amount.

Guernsey's regulated trust industry (overseen by the GFSC) generally means that financial records are available, but practitioners may still need to prepare a substitute Form 3520-A if the Guernsey trustee does not file directly with the IRS.