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Isle Of Man To Retain Two-Tier Personal Income Tax Regime

by Jason Gorringe, Lowtax.net, London
17 February, 2016

The Isle of Man has concluded that it will not remove the 10 percent rate of personal income tax and instead will look to progressively phase in changes to the income tax regime.

The consultation concerned proposals to overhaul the income tax regime to bring many low-income taxpayers out of the tax net and to establish a single-rate regime. It was proposed that the 10 percent tax rate could be abolished and the income tax exempt threshold could be raised to GBP14,750 (USD21,000). The Treasury Minister, Eddie Teare, has also asked the Assessor of Income Tax to commence work on a system that dispenses with the need to file a tax return in cases where the Income Tax Division holds sufficient information to issue an assessment straight to an individual.

In a new response document on the reforms, the Government said the majority of respondents supported the proposal, provided the increase in the personal allowance is sufficient to ensure that no individual would be adversely impacted by the changes. There was less support for the removal of the 10 percent rate of tax if this were to lead to a small increase in tax liability for some individuals. Some respondents said that removing the 10 percent rate might lead to the perception that the Isle of Man is less competitive as a low-tax jurisdiction.

However, there was a great deal of support for the proposed simplification of the tax system, with positive responses to the questions relating to this ranging between 69 percent and 82 percent.

In other areas, several respondents expressed the view that the tax cap (a fixed one-off annual tax liability for high net worth individuals) should either be increased or removed altogether.

In conclusion, the Government has said that it believes that the removal of the 10 percent rate band is not an affordable option. This is because, in order to mitigate the adverse effects of its removal on large numbers of taxpayers, the personal allowance would need to be raised to such a level that it would have an unacceptable impact on tax revenues, it said.

It added that, although the reform cannot be achieved at present, it can be introduced in stages and, to that effect, the 2016 Budget has increased the personal allowance to GBP10,500 from April 6, 2016, and the 10 percent rate band will be reduced so that it only applies to the first GBP8,500 of taxable income.

Responses to a second consultation, on national insurance contributions (NICs) for workers over State Pension Age (SPA), were largely negative. As a result the Treasury has decided to make no immediate changes. The Government acknowledged that a "clear majority" of respondents were in favor of a substantially lower contribution rate for those over SPA if there was no entitlement to contributory benefits or enhanced state retirement pension.

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