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Unravelling the Mysteries of Isle of Man Tax Residency

By December 26, 2023December 28th, 2023No Comments

Unravelling the Mysteries of Isle of Man Tax Residency

Determining whether you are a tax resident in the Isle of Man is a surprisingly complicated affair but thankfully, we reach some fairly clear conclusions in this short article so if this is relevant to you…read on.

Unlike the UK which introduced an objective fact based residence ‘test’ called the Statutory Residence Test in 2013 – the Isle of Man doesn’t have a clear ‘rule’ based system to determine tax residency – consequently, qualification for tax residency here on the Island is a little more subjective.

Tax Residency in the Isle of Man – what’s the problem ?

Technically tax residency status for individuals residing in the Isle of Man depends on old fashioned ‘common law’ principles of ‘residence’ and ‘ordinary residence’ – the real meaning of which can only be understood with reference to case law – the 1928 UK tax case Levene v. the Commissioners of Inland Revenue being the one most frequently cited.

This can create some uncertainty for people with international lifestyles planning to relocate to the Isle of Man as depending on how much time they spend here, it can be tricky for them to determine with certainty if they will be treated as Isle of Man tax residents or not. Hopefully this article will remove that uncertainty. 

Isle of Man Tax Residency – Government policy.

Helpfully, the Isle of Man Income Tax Division (‘ITD’) recognises the issue and have summarised their thoughts and internal policies on Isle of Man tax residency in two Practice Notes – PN126/06 and PN144/07. They are well worth reading but I will try to summarise  some key points below…..

The 183 day rule – if you are physically present in the Isle of Man for 183 days in a tax year then you are an Isle of Man tax resident for that year. This rule is set out in Section 10, Income tax Act 1970 – so it’s a rule based certainty. Not everyone wants to spend six months of the year in the Manx weather but they would still like to be treated as a tax resident – if that’s you – read on.

‘Deliberate’ 90 day plus residents – If you relocate to the Isle of Man, and it is your intention to stay here for 4 years or more with 90 days or longer being spent on the Island each (tax) year then you will be treated as a tax resident from the day of your arrival. 

This ‘category’ is useful for many international people who relocate to the Island. It’s important to note that it’s not a ‘rule’ per se – being treated as a tax resident in this scenario results from the case law or rather from our Income Tax Division’s interpretation of it – but it should be safe to rely on it as it is the ITD’s stated policy. 

Steps required by new residents to ‘register’ as an Isle of Man tax resident.

Upon arrival, new residents are required to complete a form R25 to the ITD so it’s important to be clear about your intentions on that form. If you want to be treated as a tax resident then make it clear it’s your intention to reside on the Island habitually. 

While ‘available accommodation’ is not technically a requirement – it would probably be hard to show an intention to stay here habitually without it, so buying or renting a house is probably an important factor.

Non Isle of Man tax residents with holiday homes.

Not everyone who visits the Isle of Man – or has a holiday home here, wishes to be treated as an Isle of Man tax resident and this is also fine in most cases. 

If you fall into this category and you plan to rent out your Isle of Man property while you are not using it – you will need to complete the R25 form as you will need to account for and pay Manx income tax on rental income from that property. 

In this case – you need to be clear on the form that the property in the Isle of Man is a holiday home and you do not intend to reside here habitually for more than 90 days in each tax year. 

If, despite your intentions, to the contrary, you end up spending between 90 – 182 days on the Island during each of 4 contiguous tax years then – ITD policy is to treat you as being resident from the beginning of the 5th year. Ie you will become an ‘Accidental’ tax resident.

A Final Word.

So, as you can see when it comes to Isle of Man tax residency, intentions are key – Deliberate and Accidental residents only vary as to their intentions but the deliberate residents who intend to stay are treated as an Isle of Man tax resident from the day of arrival and the accidental ones only from the beginning of year 5.

Related Isle of Man Tax content…

Isle of Man Tax explained for new residents.

Buying Isle of Man Investment Property – a technical FAQ

DISCLAIMER; THIS ARTICLE IS A GENERAL EDITORIAL COMMENTARY ONLY. IT IS NOT INTENDED TO BE AND DOES NOT CONSTITUTE LEGAL ADVICE.

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