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Isle of Man: Personal Taxation
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Isle of Man Information: Business, Taxation and Offshore
On this Page:
- Isle of Man Residence
and Liability for Taxation
- Isle of Man Income Tax
- Isle of Man Customs Duties
- Isle of Man Social Security
In the Isle of Man there is no capital gains tax, inheritance
tax or estate duty, capital transfer tax, gifts tax or wealth
tax. The main tax is income tax at a maximum rate of 20%,
and social security contributions are payable. The island
forms part of the EU VAT area, and applies the same rate as
the UK.
After the stringent reductions in the 2010 budget (see below),
the 2011 budget featured further reduction in public spending
and a public sector pay freeze for the second year running.
The 2011 budget left personal tax rates and allowances unchanged
from the previous year and increased the Personal Allowance
Credit by GBP50 to GBP700. The cap on mortgage and loan interest
relief was reduced by GBP2,500 to GBP7,500 per person per
annum, providing relief on up to GBP150,000 of mortgage or
loan per person per annum at a rate of 5% interest.
The 2010 budget featured lower public spending, increased
individual taxation and the use of reserves to offset the
fall in tax revenues as a result of the change to the VAT
sharing arrangement with the UK (see below).
The budget was the first instalment of a five-year strategy
to rebalance government finances following the UK government’s
announcement that it would be reducing the amount of VAT apportioned
to the island under the two countries’ VAT sharing agreement.
The salient features of the 2010/2011 budget included:
- A GBP37.1m, or 6.5%, reduction in net revenue spending
overall (but with no decrease in net spending on health
and social care);
- A 2% increase in the higher personal income tax rate
to 20%, from 18%, raising an additional GBP9.4m;
- A 1% increase in employee National Insurance Contributions
(approved by Tynwald in November 2009), raising GBP7m; and
- A GBP15m transfer from Reserves.
Bell also announced an 18% increase in Personal Allowance
Credit for the least well off, a 1% increase in income tax
personal allowance, a freeze on salary budgets and the loss
of nearly 100 staff posts by non-replacement.
“This is a Budget that paves the way for change while
maintaining support for the least well-off in our society.
There are further and greater challenges ahead, but we now
have a clear plan to manage the transition to a new era
of government fit for the future,” Bell explained.
“The Isle of Man is not alone in facing fiscal difficulties,
but we are in a relatively strong position. Our economy
is still healthy and we are a resilient and resourceful
small nation with a track record of working together to
make the most of changing circumstances.”
Other measures in the Budget included:
- The non-resident personal allowance is to be withdrawn.
- An increase to the Personal Allowance Credit from GBP550
to GBP650 per person or GBP1,300 per couple (18%).
- The tax cap was increased by 15% to GBP115,000 per person
per annum.
- The cap on Mortgage and Loan Interest relief was reduced
by GBP5,000 to GBP10,000 per person per annum, providing
relief on up to GBP200,000 of mortgage or loan per person
at a 5% rate of interest.
The following describes some other noteworthy tax changes
announced in recent years:
The 2006 Budget introduced a cap on personal income tax at
a maximum level of GBP100,000 per annum (raised to GBP115,000
as of April 6, 2010), irrespective of earnings. It is foreseen
that this will attract high-net-worth individuals and active
entrepreneurs to the Island with the drive to further stimulate
the Isle of Man’s burgeoning economy.
In 2007, the Income Tax Division of the Manx Treasury announced
the launch of convenient, easy to use and secure online services
for individual taxpayers. The Individual Tax Service will
allow people to review their previously submitted tax returns
and their tax assessments. Payment enquiries can also be made,
allowing taxpayers to both view their outstanding tax balance,
and make payments online by debit or credit card.
The Treasury said that these online enquiry and payment services
will help people keep up to date with their tax affairs, and
assist them when they are preparing their tax returns. The
Income Tax Division will introduce an online tax return submission
service for individual taxpayers in the future.
The 2008 budget provided for an additional income tax allowance
of GBP2,000 for all over-65s, taking another 1,650 pensioners
out of the tax net. In 2008/09 half the Island’s retired
population of the Island will pay no income tax. The age allowance
for 2010/11 is set at GBP2,020.
The 2009 budget increased the upper income point of the personal
allowance credit (PAC) for resident individuals to GBP9,200
from GBP8,850, (GBP9,300 in 2011). In 2010, the amount of
the credit was increased by 18% to GBP650 in respect of payments
made for the tax year commencing April 6, 2009 which are paid
after April 6, 2010. This was increased to GBP700 for the
tax year commencing April 6, 2010 which are paid after April
6, 2011. The PAC is paid to resident individuals who do not
fully utilise their single or married couple's personal allowance.
Although the rise of 1% in National Insurance Contributions
in the UK from April, 2011 was not mirrored in the Manx budget,
tax deductibility of Class 4 contributions was withdrawn as
from April 6, 2011, a move carried out in the UK in 1996.
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Isle of Man Residence and Liability for Taxation
There is no general definition of 'residence' or 'ordinary
residence' in Manx tax law; they are often interpreted as
in English law. The concept of 'domicile' is not much used.
A person will qualify as a resident if they spend a total
of 6 months on the island in any income tax year (April 6th
to April 5th). An individual who visits for more than an average
of three months each year for four or more consecutive years
will also be deemed resident. There is an important short
term residence concession which allows a person who owns a
property on the Island to spend not more than four months
in any two consecutive years in the Island and not be liable
to Manx income tax.
Persons ordinarily resident on the island remain resident
for tax purposes during temporary absences.
In practice, a new resident is taxed from the date of his
arrival, while a person who leaves is non-resident from the
date of departure.
Resident individuals are liable to tax on their worldwide
income; non-residents only on income arising in the island.
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Isle of Man Income Tax
In the 2011/2012 tax year the standard rate of Manx income
tax for individuals is 10% on the first GBP10,500 of taxable
income, rising to 20% on the balance (up from 18% in 2009/10).
Income is comprehensively defined and includes employment
income and benefits (defined more or less as in the UK), income
from property (less expenses and capital allowances) pensions,
income from a trade or profession, and investment income.
Pension contributions are mostly not taxed. Most types of
interest, dividend and royalty payment originating on the
island and paid to non-residents are exempt from tax.
The Isle of Man operates a deduction scheme for employment
income under the Income Tax (Instalment Payments) Act 1974
as amended; this is quite similar to the UK PAYE system.
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Isle of Man Customs Duties
There are no customs barriers between the United Kingdom
and the Isle of Man. For the purposes of trade and VAT in
the European Union the two countries form a single area. The
Isle of Man has undertaken by agreement to keep its VAT and
customs and excise duties provisions in line with those of
the United Kingdom. VAT is currently levied at a rate of 20%
(17.5% prior to 2011). A lower rate of 8% applies to domestic
fuel. A further reduction of 5% applies to holiday accommodation,
excluding time-share.
The Isle of Man's VAT and customs and excise duties are collected
together with those of the United Kingdom. The proceeds are
then shared between the two countries according to an agreed
formula, based on their respective populations. In terms of
Protocol 3 of the United Kingdom Act of Accession of the Treaty
of Rome, the Isle of Man enjoys free trade with member states
of the European Union but makes no payments to the union and
receives no grants from it.
In November 2009, the Isle of Man government published the
text of the revised revenue sharing agreement with the UK
that is due to enter into force from the fiscal year 2010/11.
The revised agreement – which covers Value-Added Tax,
duties on tobacco and alcohol, customs duties, anti-dumping
duties, agricultural duties, and duties on pool betting –
was expected to reduce the Isle of Man government’s
revenue by GBP50m in 2010, then GBP100m for the fiscal year
2010/2011, starting April, and GBP140m annually thereafter.
According to the UK government, the decision to amend the
agreement was taken in light of growing UK debt, and because
the arrangement was outdated.
As regards external trade the Isle of Man applies the common
external tariff of the EU.
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Isle of Man Social Security
The Isle of Man social security system is closely modelled
on the UK equivalent, both as regards contributions and benefits.
Contribution rates are 11% for employees and 12.8% for employers,
applied to earnings between lower and upper limits.
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