Isle of Man Tax explained for new residents

By April 10, 2023June 14th, 2024No Comments

Isle of Man Tax FAQ

This short article will provide you with technical information about Isle of Man taxation – which is particularly useful if you are considering relocating here. Follow the link for more general information about relocating to the Isle of Man.

What taxes do you have in the Isle of Man ?

The Isle of Man has Income tax, VAT & National Insurance. The Isle of Man does not have capital gains tax or inheritance tax and most companies are subject to tax at 0% on their profits.

How do I become an Isle of Man tax resident ?

If you are looking to relocate you can become a tax resident immediately by (i) arranging accommodation on the Island (rented is fine) and (ii) forming an intention to stay here.

For more detail, you can see Isle of Man Government Practice notes PN144/07 and PN126/06. However – read on as being an Isle of Man tax resident does not automatically non resident elsewhere. 

Are Isle of Man residents automatically non-residents of the UK for tax purposes ?

No – this is a common misconception – specialist advice suggested because it is very easy to be a tax resident in the Isle of Man and in the UK at the same time. 

Tax residence in the UK is determined by the statutory residence test (Finance Act 2013) without reference to tax residency in the Isle of Man. See a flowchart here. This means that if you spend more than a certain amount of days in the UK during a tax year, you will be UK resident notwithstanding your tax residency in the Isle of Man. This is called dual residence.

It is complex, if you wish to discuss your circumstances then contact Martin Katz by WhatsApp or email. Also see our article on finding an Isle of Man tax advisor or we will refer you if required.

What are the Isle of Man tax rates ?

The top rate of income tax for individuals is 22% (see here for allowances etc). Very high earners can also elect to be tax capped by paying £200,000 annually to the Assessor of Income Tax. 

Income from employment is subject to National Insurance (rates here). Note also that the Personal Allowance is reduced by £1 for every £2 that your income is in excess of £100,000 or £200,000 for a jointly assessed couple.

Most Isle of Man companies pay income tax at 0% (see here). The exceptions are banks (10%), large retailers (10%) and income from land incl. local rental income (22%) 

We also pay VAT in line with the UK rate (20%) as the Island has customs union with the UK.

When do Isle of Man tax years run to and from in the Isle of Man ?

For individuals, our tax year runs from 6 April to 5 April (ie the same of the UK). For companies -the tax year commence on the date of incorporation and ceases 12 months later.

Who administers the taxes in the Isle of Man ?

Income tax and NI is administered by our Income Tax Department which is headed by the Assessor of Income Tax. Telephone number: +44 1624 685400

If I leave the UK for tax purposes and become an Isle of Man tax resident, will my estate still be subject to UK inheritance tax ?

Specialist advice is strongly recommended. Contact Martin Katz by email or WhatsApp if you would like to discuss your circumstances. If required, we will refer you to a tax advisor.

In the meantime here is an overview:-

Liability to UK IHT does not depend on tax residency it depends on domicile. The estates of people domiciled in the UK at the time of their death are generally subject to UK inheritance tax. The sum payable is calculated at 40% after taking into account the nil rate band and certain reliefs and exemptions.

In legal terms, the domicile of a person is the country that a person treats as their permanent home but…there are some complicated deeming provisions in UK tax law which mean that for people relocating from the UK to the Isle of Man, it will take time to shed a UK tax domicile in favour of a Manx one. 

Additionally, UK situs assets (including UK land and buildings) are generally subject to UK IHT regardless of where the deceased was domiciled. Again the sum payable is calculated at 40% of the asset value after taking into account the nil rate band and certain reliefs and exemptions.

If I leave the UK for tax purposes and become an Isle of Man tax resident, will I immediately be free from the liability UK Capital Gains Tax ?

The answer is “Yes but”.

First up – It’s important to note that UK capital gains tax applies to UK situs land and building regardless of where the owner is resident so you cannot escape CGT on assets such as buy to lets which remain in the UK.(non resident CGT

For most other assets – Once you have made the move to the Island and become a non tax UK resident then you should not be subject to UK CGT on capital gains arising from the sale of those assets (eg shares / cryptocurrency etc).

However, special rules apply if you return to the UK within 5 years as you will be considered a ‘temporary non resident’ of the UK (see more detail here). If you do – then this will trigger a capital gains tax charge on the asset sold while you were non resident (ie a claw back).