Isle Of Man Taxation – Specific Points
The only direct taxes that you need to consider as a new resident are income tax and national insurance. There are no capital taxes in the Isle of Man. Chargeable gains can be realised free of Isle of Man tax and there are no gift or death taxes.
Personal allowances and certain tax-deductible payments, such as pension contributions for example, can reduce your taxable income for the year, and income tax is charged at the 10% and 20% rates.
Joint assessment of married couples and civil partners is an option, and may be beneficial in certain cases.
The national insurance system is broadly the same as that which operates in the UK, with charges on employers and employees as well as the self-employed.
The Tax Cap
Residents can limit their income tax liability to £200,000 per annum over five consecutive tax years if income levels are likely to be significant, reducing the effective overall rate of income tax that would ordinarily be suffered on the income. A tax cap election must be made prior to the start of the first tax year to which it will apply.
Domicile & Inheritance Tax
In the context of the UK, your domicile determines the extent of your exposure to UK inheritance tax. If you move from the UK to the Isle of Man with an intention to reside in the Island permanently or indefinitely, then your inheritance tax exposure might eventually be reduced or eliminated altogether.
You might be in a position to shed a UK domicile of origin in favour of an Isle of Man domicile of choice within a relatively short period of time after your move to the Isle of Man, if it is clear that you have firmly established an intention to remain in the Isle of Man permanently or indefinitely. However, it may take longer to extricate yourself from the scope of UK inheritance tax due to the operation of a specific UK inheritance tax provision, the deemed domicile rule, which treats you as domiciled in the UK for a period after your departure from the UK, regardless of your domicile position under general law.
As a general rule, for those who have been resident in the UK for the long term, a minimum of six complete tax years of non-UK residence is required before losing this deemed domicile status.
Investment Holding Companies
The use of Isle of Man incorporated investment holding companies could be relevant if you have assets abroad, both for probate purposes and longer-term inheritance tax protection. For example, if you have shed UK domicile and are not deemed domiciled and wish to hold UK assets (residential property is an exception to this rule), holding the assets via an Isle of Man company could remove an inheritance tax exposure.
Tax Efficient Investments
Certain investments might not be efficient for Isle of Man tax purposes, and in fact could even give rise to a higher overall tax burden than one might expect. There are certain investments which, if carefully managed, can provide a deferral of tax and, in certain cases, mitigation of tax.
More Complex Cases
Those individuals who have more complex tax affairs, which might encompass a variety of investments and shares in privately held trading companies, for example, or who might be naturally entrepreneurial in outlook, should seek taxation advice prior to a move to the Isle of Man. There are certain nuances to the operation of taxation in the UK and the Isle of Man which must be considered prior to making the move.
For more information on the above topics contact Jenny Akrigg or Andrew Cardwell at www.equiomgroup.com/