Isle of Man: Personal Taxation
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.
Treasury Minister Eddie Teare delivered his first budget to Tynwald on February 21, 2012. He outlined that Government spending for 2012-13 has been reduced by £35 million. To address the GBP70million annual shortfall created by the renegotiation of the VAT agreement with the UK government, the 2012/13 budget contained the following important features:
- Reduction of the personal allowance credit from GBP700 to GBP500;
- Increase in the minimum income tax liability from GBP115,000 to GBP120,000;
- Tax relief for interest on mortgages and loans, charitable donations, private medical insurance and nursing expenses reduced to 10%;
- Income tax bands and rates remained unchanged.
The above figures remained unchanged in the 2013/14 budget.
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.