Writing for EPrivateClient’s Isle of Man Report 2019, BKL private client partner Geraint Jones outlines the tax advantages the Isle of Man offers for wealthy UK citizens looking to live or invest offshore.
Geraint explains how shared values and geographical proximity, as well as financial advantages, make the UK and the Isle of Man perfect bedfellows for wealthy individuals. The article also explores the tax advantages available to Isle of Man companies.
There are many offshore tax havens, but none with the singular advantage of being closer to the UK geographically and culturally than the Isle of Man.
The stability that such proximity represents is valuable in a volatile world; and whilst it would be glib to say that proximity breeds probity, there is little that troubles tax authorities about a tax haven barely 90 miles off the northwest English coast.
The English-speaking Crown Dependency, with its Celtic origins and appearance, sits comfortably on the ‘white list’ of reputable offshore havens produced by the Organisation for Economic Co-operation and Development (OECD). As tax authorities are making little secret of their determination to track down hidden funds, money is now increasingly judged by the regulatory friends it keeps, so this particular marque of respectability is important.
What, one has to ask, is the value any longer of keeping wealth in a tax haven on the grey and black lists prepared by the OECD? Questionable, to say the least. In fact, those at the ‘white’ end of offshore investments now balk even at the use of the phrase ‘tax haven’, preferring instead something less branded, such as ‘low-taxed financial centre’.
But language niceties aside, the island still has the full house of tax advantages: No corporation tax, capital gains tax, wealth tax, stamp duty or inheritance tax. The level of income iax for most of those who live there is just 10 per cent, and no offshore or foreign private company incorporated is subject to local taxation.
A taxation treaty with the UK means no concerns about being taxed twice for UK residents who benefit for registered trusts and companies. The taxation system in the Island is entirely separate from that of the UK, apart from VAT, which is charged in largely the same way.
No risk of turmoil
Not all tax havens are created equal, even those dependent on the Crown. Many are far away, less instinctively familiar as a result, and more prone to political turmoil.
And as the chance of attracting outside regulatory scrutiny is increasingly being allied to national character, so tax havens will find it increasingly hard to separate their external image from their more discreet functions.
This matters because at a very fundamental level the point of a tax haven, apart from avoiding state coffers, is to be secure and reassuring. Whilst the service provider in the haven is not the legal beneficiary of assets registered, it is the legal owner. If things get nasty, a trustee could, theoretically, become obstructive. It is hard to imagine that concern applying to the Isle of Man, or other nearby tax havens in the Channel Islands.
It is also always useful to ask a personal question when choosing one haven over another: Would you want to live there? This helps avoid the tax avoidance tail wagging the lifestyle-anxious dog and brings a wider value system to bear. For many people, being a short hop to the UK is a very attractive proposition, even with the rain.
Shared values
But what really sells the island against its more distant, palm-fronded rivals is the certainty of a rule of law grounded in common and familiar values.
The Isle of Man, with its firm rooting in English common law and the world’s oldest parliament, the Tynwald, offers a familiar legal map to investors and their advisers. Despite the fact that British law has no reach, it would be a mistake to underestimate the value of ethos and influence that the UK system exercises.
Tax advantages available to Isle of Man residents and companies
For individuals:
- Irrevocable five year election to pay a fixed annual amount of £150,000 tax per person if you elect in 2018/19 (£300,000 for a married couple)
- Tax free allowances for 2018/19 of £13,250 per person (£26,500 for married couples)
- 10% tax on first £6,500 of income above the personal allowance (£13,000 for married couples)
- Top marginal rate of income tax of 20%
- No capital gains tax, inheritance tax or stamp duty
- Tax relief for interest paid to an Isle of Man lender including mortgage
For companies:
- 0% rate of income tax on most income
- 10% rate of income tax on banking business
- 10% rate of income tax on retail businesses with annual taxable profits of £500,000 or more
- 20% rate of income tax on income from Isle of Man land and property, e.g. rents/property development profits
- No requirement to deduct withholding tax from most dividend and interest payments
This article was first published in EPrivateClient’s Isle of Man Report 2019, available here.
For more information about our private client tax services, please get in touch with us using our enquiry form.