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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.
Features
of the Manx 2005 budget included increases
in Personal Allowances by 3.3% to GBP8,500
for a single person and GBP17,000 for married
couples, taking 700 people out of tax based
on their latest available tax-returns.
The
2006 Budget increased personal tax allowances
to GBP8,670 for single people and to GBP17,340
for married couples. Combined with an increase
in the Personal Allowance Credit by 40% to
GBP350, this will help the less well off,
giving almost GBP3m income to those that need
it most, said the Treasury.
The
Budget also introduced a cap on personal income
tax at a maximum level of GBP100,000 per annum,
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
2009 budget increased the upper income point
of the personal allowance credit (PAC) for resident
individuals to GBP9,200 from GBP8,850. The maximum
credit was increased to GBP550 from GBP500.
The PAC is paid to resident individuals who
do not fully utilise their single or married
couple's personal allowance. The changes will
took effect from April 6, 2009. No change in
income tax rates, allowances, reliefs and thresholds
was announced in the 2009 budget.
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
installment 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,”
Treasury Minister Alan 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 noteworthy 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 will be increased by 15% to GBP115,000
per person per annum.
The cap on Mortgage and Loan Interest relief
will be 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.
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.
In the 2010/2011 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).
Changes
which came into effect in 2004 included:
Extending
the current year basis of assessment to
all income received by individuals and
other non-corporate taxpayers, including
income from investments, self-employment
and other sources. (Income from employment
is already on a current year basis).
Two
months longer – five months instead
of three months – to make a tax
return. But overdue returns will be subject
to a new GBP50 penalty after September
2005 and the Bill also updates offences
in relation to returns more than two years
overdue.
New defined powers for the Assessor of
Income Tax to obtain documents including
material relevant to the international
exchange of tax information on request,
in line with the Island’s commitment
to the OECD.
Provision to prevent the avoidance of
Manx tax by company directors, for example,
using company loans to exploit the differential
between corporate and personal income
tax rates.
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.
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 17.5% (temporarily reduced to 15% from
December 1, 2008 to December 31, 2009).
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 –
is 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.
The Isle of Man social security system is
closely modelled on the UK equivalent, both
as regards contributions and benefits. Contribution
rates are 10% for employees and 12.8% for
employers, applied to earnings between lower
and upper limits.
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