Read Tax Director, Robert Rotherham's latest article about the 2020 Isle of Man Budget.
With a backdrop of a £2.3m increase in forecast tax receipts and the now traditional increase in personal allowances, the 2020 Budget was generally a quiet one from a tax perspective. An underlying theme to the tax-related announcements could, however, be discerned: that of offering encouragement to businesses and individuals to relocate to the Isle of Man. Whilst the Manx economy has proven resilient in the face of international pressures, both commercial and regulatory, competition amongst jurisdictions to attract business start-ups and those relocating from elsewhere remains fierce. In this context, innovative use of the tax system to help drive economic growth is vital, as is the availability of public funds to provide other financial and non-financial assistance.
In respect of the latter, the Treasury Minister has allocated £5m to Government schemes designed to support new business. In respect of the former, three main tax measures (none of which, it has to be said, are brand new) aimed at incentivising relocation to the Island were dealt with as part of this year’s Budget.
The development with possibly the most widespread interest is the decision to roll forward the National Insurance holiday announced in last year’s Budget for a further 12 months. This measure enables new Isle of Man residents and returning students to claim a refund of any Class 1 National Insurance deductions from their salary in respect of their first 12 months of employment on the Island and is thus of potential benefit to all local business looking to attract workers from further afield. Given the shortage of skilled labour in certain sectors of the local economy, the extension of this measure represents a welcome boost.
The main “new” development is that, from 2020/21, it will be possible to elect into the tax cap regime for a 10-year period (at a fixed annual tax liability), compared to the 5-year commitment necessary up until now. Whilst it will remain possible to make a 5-year election, the opportunity to elect in for a decade may well prove attractive to those high-income individuals for whom longer-term planning and certainty are key. Whilst not all “tax cappers” run a local business, a significant number of them do and thus, by offering long-term assurances as to their tax position, the Treasury Minister will hope to see similarly long-term business plans made in the Island, both by those already here and those considering relocating.
Another welcome measure is the codification of the so-called key employee concession, which first came into operation in the 2003/04 tax year. The concession applies to newly resident individuals who are essential to the implementation and operation of a new business in the Island (e.g. an entrepreneur moving here to set up a new company) and, in essence, works by effectively exempting non-Isle of Man sources of income from the charge to Manx income tax, for a maximum of three years. As ever, there are a number of conditions which must be satisfied in order to qualify for such treatment; however, in many situations the tax savings will be significant and thus may act as a powerful incentive to relocate. By writing what was previously a published concession into primary legislation, the message from the Treasury is that this measure is here to stay and so should allow businesses and advisers alike to factor it into their considerations with greater confidence.
When combined with the lifestyle advantages the Isle of Man has to offer, it is to be hoped that the package of tax measures available for new residents is sufficient to help Isle of Man businesses continue to thrive.
The term Partner refers to a member of KPMG LLC / KPMG Audit LLC.
© 2020 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.