FAQ – Manx taxation on income from Isle of Man Investment property.
For certain categories of investor, holding Isle of Man investment property is significantly more tax efficient than holding equivalent investment property based in the UK.
The key features are:-
- Unlike the UK, the Isle of Man imposes no capital gains tax on the sale of Manx real property.
- Unlike the UK, Isle of Man property is not subject to SDLT / Stamp duty on a sale or transfer.
- Further there are no inheritance taxes in the Isle of Man therefore no Isle of Man IHT is payable on the death of an owner of Isle of Man property.
- Isle of Man income taxes are due on profits derived from Isle of Man land (see more below) but the rates are reasonable compared with other juridictions.
While the majority of UK residents will not be able to take full advantage of these differences due to the way that the UK tax rules operate, non-domiciled residents, offshore trusts and other overseas investors may see significant benefits from investing in Manx rather than UK real estate.
Now some detailed information:-
What is income derived from Isle of Man land / property ?
Income derived from Isle of Man land / property includes income derived from any of the following activities where the relevant land / property is situate in the Isle of Man:
- Mining & Quarrying
- Property Development
- Commercial property letting
- Rental Income.
What is the tax rate on income derived from Isle of Man land / property ?
For personal tax purposes the personal income tax rates apply (the standard Isle of Man rate is 20% but tax free allowances apply see here.
For corporate tax purposes – since 6 April 2016 the applicable rate on income derived from Manx property is 20%. (note for most other purposes the Isle of Man corporate tax rate is 0% (see here)
Are any tax credits available ?
Yes – for Isle of Man personal tax payers, applicable distributions from a corporate taxpayer that has paid tax on Isle of Man property related income carry a 20% tax credit. (ie you shouldn’t get taxed twice for owning property in a Manx company).
Isle of Man corporate taxpayers receiving distributions from another corporate taxpayer who has already been charged tax on the relevant Isle of Man property related income a tax credit also applies.
See Practice Note 187/15 (Feb 2015) for detailed information.
Can overseas / UK individuals (natural persons) own land and property in the Isle of Man ?
Yes. There are no restrictions on overseas / UK based individuals (natural persons) acquiring and owning property that is situated in the Isle of Man.
However, where income from land / property arises then that person will be subject to Manx Income tax so the completion of an Isle of Man income tax return will be required.
Can overseas / UK companies (corporate bodies) own land and property in the Isle of Man ?
Yes, however, overseas corporate bodies holding land in the Isle of Man are required to register at the Isle of Man companies registry under the Foreign Companies Act 2014.
They are also required to complete an Isle of Man tax return and pay Isle of Man tax on relevant income derived from holding the said property. See here for more information about registration of foreign companies in the Isle of Man.
The most usual way for overseas owners / investors to acquire and hold Isle of Man land / property via a locally incorporated Isle of Man company.
This should simplify the administration locally in the Isle of Man and depending upon their specific circumstances, it may provide some tax benefits for the beneficial owners.
Setting up and administering Isle of Man companies is a regulated activity in the Isle of Man. If you need assistance with setting up or administering an Isle of Man company for holding Manx property then contact us or read our article on selecting an Isle of Man corporate service provider.
Is Stamp duty / SDLT payable on the acquisition of land / property in the Isle of Man ?
No – there is no stamp duty or SDLT payable in the Isle of Man in respect of transactions relating to the acquisition / disposal of interests in Manx land.
This applies whether or not the purchaser is situated in the UK.
The reason for this is that Isle of Man is a separate jurisdiction from the UK with its own unique legal system and laws.
What are Isle of Man Land Registry Fees in relation to Isle of Man Investment Property ?
As noted above – there is no stamp duty / SDLT payable in the Isle of Man. However, Isle of Man property transactions are subject to registration fees. While these are much lower than UK SDLT rates they are still potentially significant.
Land registration fees for a GBP250K investment property are GBP2500.
Local agents Cowley Groves issued a guide here and you can see the underlying legislation within the Land Registration General Fees and Duty Order 2019 which details the fees payable. You can also download a calculator from the Isle of Man Government here.
Are capital gains taxes payable on the disposal of Isle of Man Investment property ?
No, the Isle of Man Government does not levy capital gains tax to residents or to non residents in respect of profits arising on the the disposal of Manx property.
(Note: While UK residents or other overseas persons disposing of Manx property, will not be subject to capital gains taxes in the Isle of Man, they may be subject to CGT or other taxes locally in their home jurisdiction – this will depend on their local laws and tax system).
If I die, is Isle of Man inheritance tax payable in relation ownership of Isle of Man investment property ?
Unlike the UK, where UK situate land and property is subject to UK inheritance tax charges – regardless of the residence and domicile of the owner, there are no inheritance taxes payable in the Isle of Man with respect to Manx land or property.
Note: Owners of Manx land may still be subject to inheritance taxes in relation to their ownership of Isle of Man assets in their ‘home’ jurisdiction.
- Income derived from Isle of Man property Including rental income is subject to tax at 20% in the Isle of Man.
- The sale of Isle of Man property is subject to capital gains tax at 0% in the Isle of Man.
- Isle of Man land / property is outside the scope of inheritance tax in the Isle of Man.
- The purchase of Isle of Man land / property is not subject to UK SDLT / Stamp duty – however, as noted above, local registration fees do apply.
However, as previously mentioned – notwithstanding, the apparent tax benefits noted above, where the beneficial owners are UK taxpayers then, UK taxes (CGT / IHT etc) are likely to be due on Manx property interests so local professional tax advice is a necessity.
Nonetheless, there are good reasons for certain categories such as UK resident non domiciliaries, offshore trusts and certain other non UK overseas investors to consider investment in Isle of Man rather than UK real estate.
DISCLAIMER; THIS ARTICLE IS A GENERAL EDITORIAL COMMENTARY ONLY. IT IS NOT INTENDED TO BE AND DOES NOT CONSTITUTE LEGAL ADVICE.