Taxation of Individuals

Income Tax

Income is taxable on either of two criteria:

• Residence in the Isle of Man of the taxpayer - the taxpayer’s worldwide income is taxable.
• Isle of Man source income arising or accruing to a non-resident of the Island.

An individual’s income tax liability is capped at £100,000.00 or £200,000.00 in the case of a jointly assessed married couple.

A person who spends more than six months in the Isle of Man will be regarded as a resident. An individual who has Isle of Man accommodation available for use but the total period of whose residence, together with that of his family, in two consecutive years does not exceed four months may elect to be treated (for income tax purposes) as a non-resident. There are detailed rules regarding the commencement and termination of residence.

An individual’s gross income is subject to various reliefs and allowances. All resident taxpayers are entitled to a personal allowance. Each of a husband and wife is entitled to a personal allowance. The personal allowance of one member of a married couple may be wholly of partly transferred to the other member. Relief is allowed (at the highest marginal rate) for loan interest paid to an Isle of Man institution and for contributions made to an approved pension scheme. Expenditure incurred wholly and exclusively for the purpose of a profession or trade is also allowable.

There are special rules dealing with the valuation (for income tax purposes) of benefits in kind, particularly cars provided by employers.

National Insurance Contributions

The rate varies according to whether the individual is employed or self employed.

Losses

The schedular system of income tax means that losses arising in one schedule must first be set against income arising in the same year in the same schedule. Any surplus losses may be carried forward and set against the first available profits of the same schedule in a subsequent tax year; losses may be carried forward until relieved in full.

Double Taxation Relief

The only double taxation agreement to which the Isle of Man is a party is with the United Kingdom:

this provides that:

• trading profits belonging to a resident of one territory are taxable there unless attributable to a permanent establishment in the other territory;
• profits from operating ships and aircraft by a resident of one territory are taxable there;
• certain personal services performed in a territory are exempt in that territory if performed by a resident of another territory for a resident of that other territory; and
• in circumstances where there might otherwise be a liability to double taxation, which is possible in the case of dividend income and interest, relief may be allowed.

Recent negotiation between the Isle of Man and Sweden, Norway, Finland, Iceland, Denmark, Greenland and the Faroe Islands have resulted in agreements between Isle of Man and the seven members of the Nordic Council in the areas of double taxation for individuals, companies, shipping and aircraft. It also provides for an agreement on the exchange of information (in line with the OECD principles of effective exchange of information). A similar agreement is now in operation between the Isle of Man and the Netherlands.