In this article, Liz Green, Tax Director at Grant Thornton, provides a summary of the changes to the Guernsey definition of a distribution which will from 1 January 2026 potentially include shareholder loan repayments and how these changes may affect local fiduciaries.

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Historically it has been common practice that shareholders make loans to their personal companies and take loan repayments as a means of withdrawing funds from the company. 

The Guernsey Revenue Service (GRS) have been reviewing this recently and they are of the view that in certain circumstances, taking loan repayments may constitute tax avoidance. To address this, an updated Statement of Practice M45 was issued in June 2025, intended to clarify previous ambiguities in the Zero-10 legislation. 

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New questions were included on the 2024 tax return asking about loans and capital introduced to assist the GRS in identifying companies which have shareholders loans, and they may seek to make enquiries if they deem necessary. 

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In the 2026 budget the definition of distributions has been amended to include repayments of non-commercial loans from a personal investment company to Guernsey resident shareholders. This will take effect from 1 January 2026. Loan repayments of a commercial loan made to a trading company would not be considered a distribution under the amended law. 

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This means that where a Guernsey resident shareholder takes a loan repayment from their personal investment company they will be taxable on the repayment to the extent there is undistributed income in the company’s zero-10 pools. If there is income which has already suffered tax by the company then credits may be available.   

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Whilst this change in definition of a distribution is a significant change from the previous treatment the impact for fiduciaries is expected to be low as of course the vast majority of trusts which own Guernsey companies have no Guernsey resident settlors or beneficiaries. On a similar basis pension schemes are unlikely to be adversely impacted by this change as ultimately all flows of income out of such scheme are taxed as income in the member’s hands.  

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We are still awaiting some clarity from the GRS on the practicalities of this change such as administration and payments. Given that this will only affect Guernsey resident shareholders we would not anticipate a significant impact on the private wealth industry locally, however those fiduciaries with trusts with either Guernsey resident settlors or beneficiaries would be well advised to review these structures once the new legislation is published...