Move to the Isle of Man and
Cut Your Tax Bill by 50%
A Great Tax Haven Just 40 Miles from Britain
PAUL earns £120,000 a year but only pays £19,100 in income tax. His brother Simon earns exactly the same but pays £40,500.
Patti earns £1 million but only pays £100,000 income tax. Her friend Shirley earns exactly the same but has an eye-watering tax bill of £477,500!
Why do Paul and Patti pay so much less tax than Simon and Shirley?
The simple answer is that Paul and Patti live on the Isle of Man, whereas Simon and Shirley live in the UK.
The Isle of Man does not have the lowest income tax rates in the world. Monaco and the Cayman Islands, for example, have no taxes at all. However, paying some tax is the price you pay to live in a tax haven situated just 40 miles from the British mainland, with the same culture and lifestyle.
In a recent survey of 400 wealth advisors by the Scorpio Partnership, the Isle of Man was rated the 8th best business and financial centre for “mobile wealthy” people to live in. The survey didn’t just look at tax but other quality of life measures as well. The overall rankings were as follows:
- New York
- Hong Kong
- Cayman Islands
- Isle of Man
London enjoys an extremely high rating, although most of the research was carried out before the tax hikes announced in the April Budget. And, of course, places like Hong Kong, London and New York offer a completely different lifestyle to the likes of Jersey, Guernsey and the Isle of Man.
Unlike many tax havens, which make it difficult if not impossible for anyone except the ultra rich to obtain residence, the Isle of Man welcomes entrepreneurs with open arms and you may even qualify for some free cash from the Manx Government (see box).
Of course, upping sticks and moving to another country or jurisdiction is not everyone’s cup of tea and there are some major tax consequences to moving yourself and an existing business which we will examine in a future issue.
However, because the potential tax savings are so large, it is important to take a look occasionally at what’s on offer in other places. For example, some of the most hated taxes in Britain do not even exist on the Isle of Man, including Capital Gains Tax, Inheritance Tax, and Stamp Duty Land Tax.
And what about Corporation Tax, or Corporate Income Tax as it’s known on the island? The Corporate Income Tax rate for most Isle of Man companies is 0%, whereas in the UK profits up to £300,000 are taxed at 21% and profits between £300,000 and £1.5 million are taxed at 29.75%.
However, it’s slightly misleading to talk about 0% tax because if less than 55% of your Manx company’s profits are extracted, and you live on the island, you will have to pay income tax on your share of the “attributed income”.
However, looked at it in a more positive light, up to 45% of your Manx company’s profits can be completely tax free, leaving you with more money to reinvest and grow your business.
Although income tax rates are almost universally lower on the Isle of Man than in the UK, the gap would probably not be big enough to make moving to the island worthwhile unless you are a top earner. Income tax is levied as follows:
- The first £9,200 is tax free
- The next £10,500 is taxed at 10%
- Income above £19,700 is taxed at 18%
Very high earners benefit from a £100,000 tax cap – no matter how high your income, you will never pay more than £100,000 in tax. That’s why Patti only pays £100,000 tax on her income of £1 million.
How do these rates compare with the UK? Here, the first £6,475 is tax free, the next £37,400 is taxed at 20% and income above £43,875 is taxed at 40%.
Unlike the Manx Government, which rewards high earners, the UK Government likes to penalise successful individuals. Starting next year, anyone with income over £100,000 will have their personal allowance withdrawn and income over £150,000 will be taxed at 50%.
Hence the gigantic £377,500 difference between Patti’s and Shirley’s tax bills. Here are some more examples of UK and Isle of Man income tax bills, based on rates applying from next year.
Income (£) IoM UK
50,000 6,504 9,930
75,000 11,004 19,930
100,000 15,504 29,930
125,000 20,004 42,520
150,000 24,504 52,520
200,000 33,504 77,520
300,000 51,504 127,520
500,000 87,504 227,520
750,000 100,000 352,520
1M 100,000 477,520
Anyone earning over around £100,000 will pay approximately 50% less income tax than in Britain. Even those earning £50,000 pay 35% less tax, although I’m not convinced that a £3,500 tax saving would be enough incentive in itself to emigrate.
Another tax benefit of living on the Isle of Man is that married couples can elect to be taxed jointly with the tax-free personal allowance and 10% tax band being doubled up.
And here’s something that may make you nostalgic. Mortgage and loan interest paid to an Isle of Man lender is tax deductible up to £15,000 (£30,000 for married couples taxed jointly).
Certain educational support payments of up to £5,500 per child or grandchild at university are also tax deductible.
So if Paul who earns £120,000 has, say, £20,000 of qualifying interest and education expenses, his tax bill will fall from around £19,100 to £15,500. If his brother Simon in the UK has identical expenses he will still be landed with the same £40,500 tax bill.
Two taxes you will not be able to escape by moving to the Isle of Man are VAT and National Insurance, which are levied in the same way as in the UK.
There are also property taxes which are the primary source of income for local councils.
In the Scorpio survey the Isle of Man was rated 2nd for availability of quality housing. This isn’t surprising because in many tax havens and big financial centres property prices are still extortionate.
Although property on the Isle of Man is cheaper than in many parts of the South East, the average Manx property is still approximately 50% more expensive than the UK average.
Nick Cooper, director of Black Grace Cowley, one of the island’s leading estate agents, says the Isle of Man has so far escaped the property collapse seen in the UK and he expects prices, especially those of executive homes priced at over £1 million, to start rising this year.
The overall message is that, if you are looking for a bargain property, do not go to the Isle of Man but, on the plus side, the market may be more stable.In summary, moving from the UK to the Isle of Man could reduce your tax bill by between 35% and 80%. It goes without saying, however, that it would be foolish to move somewhere for tax reasons alone. Why? For the simple reason that tax laws can be changed at the stroke of a pen, making a mockery of your expensive and time consuming relocation.