Isle of Man Budget 2012
22 February 2012
Treasury Minister Eddie Teare MHK presented his first Budget to the Isle of Man Government on 21 February 2012. Against the backdrop of a reduction in VAT income and tough worldwide economic conditions, Mr Teare has said the wants the budget to “strike a fair balance”. The main features of interest to our clients are as follows:
1. Corporate Taxation
1.1. Attribution Regime for Individuals (“ARI”)
Further to the announcement in the previous Budget; it was re-confirmed that ARI will be abolished for accounting periods commencing and ending on or after 6 April 2012. Following the announcement of the abolition of ARI last year the EU Code of Conduct Group confirmed that the Isle of Man Zero-Ten regime is compliant.
It appears that to compensate for ARI the concept of capital distributions will be removed as of 21 February 2012 and therefore if an Isle of Man Company makes a distribution the full distribution will be taxable (previously only any excess over the profits for that tax year would be treated as a capital sum). This will have negative consequences in a number of scenarios, for example if an Isle of Man resident individual holds property in the UK through an Isle of Man investment company the rental income will be taxed in the UK and in the Isle of Man when a dividend is paid.
1.2. Zero-Ten regime
There has been no change to the Zero-Ten regime.
The 10% rate of tax applies to the following sources of income received by a company:
· Banking business; and
· Income from land and property in the Isle of Man; and
· Companies who elect to be taxed at 10%
The 0% rate of tax applies to all other sources of income received by a company.
2. Personal taxation
2.1. Income Tax
The income tax rates and personal allowances remain unchanged. Therefore the standard rate of Income Tax remains at 10% and the higher rate of Income Tax remains at 20%.
The income tax personal allowances also remain at £9,300 for a single person and £18,600 for a married couple.
2.2. Tax Cap
The tax cap will be increased from £115,000 to £120,000. If a married couple are jointly assessed this amount will be doubled to £240,000.
2.3. Tax relief for deductions
Pension contributions will continue to attract 20% tax relief. From 6 April 2012, tax relief on all other payments is restricted to 10%. This will include interest paid on mortgages or loans and charitable donations.
2.4. Use of companies
We understand there are changes proposed relating to the taxation of individuals who perform their service through a company as they may be treated as a direct employee of the entity to which they are providing their services.
3. Conclusions
It is vital that the Island’s economy continues to grow and we are pleased that pressure to raise corporation tax levels has been resisted and the Government remain committed to a 0% rate of tax for Isle of Man Companies (other than the limited exceptions outlined above e.g. banking business). Although the tax cap has been increased it remains at a level that continues to make the Island a very attractive place for high net worth individuals to relocate to. These send out the right message that the Isle of Man is open for business.
The Isle of Man needs to be able to attract new business and investment and the Government needs to support growth by promoting the Isle of Man as a jurisdiction of choice to do business whilst introducing legislative changes to create a business friendly environment. In this regard we shall lobby the Government to consider amending the proposal to remove the concept of capital contributions. These changes could negatively impact those individuals who hold UK property through Isle of Man Companies and the Isle of Man based businesses that provide services to such individuals and they could damage the image and attractiveness of the Isle of Man as a jurisdiction. We expect there will be opposition to these changes from the Island’s finance sector and other industry bodies.
Ali Stennett
Director
Boston Limited