Guernsey Press Business Panel – Retirement annuity trusts explained with Sean Gillease

I’m 40 years old and saving for a new house. I have a Retirement Annuity Trust and I’ve been told by a friend that I can take a loan from it, but is this true? Sean Gillease, business development manager, Sovereign Trust (Channel Islands) Ltd, replies:

IT IS possible, under Guernsey income tax law (the ‘Law’) for the trustees of a retirement annuity trust to make a loan to a member, which would be paid out from the funds that the member has contributed into their own RAT.

Therefore, assuming that no restriction to the payment of a loan has been written into your trust deed, it should be possible for you to request a loan from your RAT. Your trustee would be able to confirm this.

A loan agreement between you and the trustee of your RAT will be required, which will clearly state the terms of your loan.

The Law does impose certain conditions: the loan cannot exceed 30% of the value of your RAT; a commercial rate of interest must be applied (payable annually) and repayment must be made in full before commencement of benefit. Given that any loan taken must be fully repaid before you can take any benefit from your RAT, that means that when you get to age 50, which is the minimum retirement age under Guernsey Law, if you haven’t repaid your loan in full you would be unable to take your pension commencement lump sum entitlement and/or annual income payments until the loan had been repaid.

In this scenario, you could offset the outstanding balance of the loan against what you would be entitled to as a PCLS and your PCLS entitlement would be lowered accordingly, but your loan would then be considered to have been repaid in full.

Read the full Business Panel article here.