The Isle of Man is close to ‘home’, has advantages that other jurisdictions don’t offer (including space, security and no restrictions on residency or property purchase), and can give business owners flexibility and freedom of movement
Fasten your seatbelts and take off for a short hop over the water to start a new life in the Isle of Man: now, why would anyone do that? UK politics, for one.
With ongoing uncertainty, business owners, wealth creators and entrepreneurs would be forgiven for considering their options elsewhere – but where might they go?
The usual suspects include Portugal, Switzerland and the Caribbean. All have their pros and cons: some are far from home, some are culturally different, some have residency requirements, and some face uncertainties of their own.
But what if there was an alternative right under their noses? The Isle of Man doesn’t often feature on this list, but it has so much to offer and few people realise it. Most people who are settled in the UK don’t really want to leave.
Sure, they may get fed up with politics, or the level of crime, but their life is usually pretty established. Fitting into new cultures or learning new languages can be daunting – so if they must leave, whatever drives them, they need somewhere they can genuinely settle.
In many respects the Isle of Man is a hidden paradise which, until you spend time here, cannot be fully appreciated.
Of course, a few TV personalities have taken exception to the weather and poked fun at the island, but the reality is that it’s like many places in England, Scotland or Ireland, albeit with some surprising advantages for the disillusioned fiscal nomad.
I’ll leave a discussion of these advantages to the Locate Isle of Man team (talk to them – you’ll be pleasantly surprised), and instead will concentrate on tax: not Manx tax, which is straightforward, but UK tax.
With the UK facing possible changes to the tax system, entrepreneurs can be left feeling uncertain about the future and how this might affect their finances. Isle of Man income tax is a maximum 20 per cent and a tax cap of £175,000 applies for the fiscal year. There are no capital, wealth or inheritance taxes.
If someone moves to the Isle of Man lock, stock and barrel, they will be limited on how much time they can spend in the UK. To be resident requires presence, usually by buying or renting a property and genuinely being active on the island. Relocation means paying Manx tax, but such a move suits some more than others.
What if an entrepreneur has one foot in the UK and one in the island? By this I mean being resident for tax purposes in the UK (ie not leaving) and being resident in the Isle of Man too. Here’s the interesting part: in April 2019 the Isle of Man entered into a new double taxation treaty with the UK.
The effect is that if someone is both UK tax resident and Isle of Man tax resident in any fiscal year, the treaty starts to work. The treaty applies a series of tests (a ‘tie-breaker’) to see where a person is resident for treaty purposes, which then decides how a person is taxed on various sources of income and capital gains.
The treaty, interpreted in plain English, determines an individual’s status by considering whether the entrepreneur has a permanent home on the island and no home in the UK – in which case the Isle of Man will have the right to tax them. If the entrepreneur has two homes (one in the UK and one in the IOM), then if they are more connected to the island the Isle of Man will have the right to tax them.
If they are not sure where the centre of interests is, then one has to find the place where their ‘habitual abode’ is located: if that is in the Isle of Man, then the Isle of Man has the right to tax them.
Icing on the cake
If all else fails, the UK and Isle of Man tax authorities will discuss their specific circumstances and make a decision on which country can tax. In short, if the tests are passed favourably, the treaty may mean the individual is not taxable in the UK, depending on the nature of income or capital gains arising. The potential icing on the cake is that they may also not be highly taxed in the Isle of Man.
All this, and no restrictions on the amount of time you can spend in the UK… too good to be true? Not necessarily.
Buying a house on the island, relocating family to be schooled here or starting businesses here (including centralisation of family wealth) may trigger the tie-breaker, meaning tax advantages can be obtained alongside greater flexibility as to where the person decides to spend their time. Any individual needs to take tax advice and relocating may not suit everyone, but it will suit some. The conclusion? Don’t overlook the obvious.
The Isle of Man is close to ‘home’, has advantages that other jurisdictions don’t offer (including space, security and no restrictions on residency or property purchase), and can give business owners flexibility and freedom of movement. It’s not just a jurisdiction of convenience, it’s a home to many and a rewarding place to live.
Why? They see the advantages and take the time to find its hidden jewels.
Paul Hotchkiss is owner and managing director of Hotchkiss Associates
This was first published in the March/April edition of Spear’s magazine