In the
recent Isle of Man Budget it was announced that the Tax Cap, that is the
maximum income tax liability for individual residents of the Isle of Man, will
remain at £120,000 per person or £240,000 for a jointly assessed married
couple.
This
imaginative policy was introduced in 2006 in a bid to attract high earning
entrepreneurs to the Isle of Man with the always tempting carrot of a
guaranteed low income tax liability. The policy was not universally popular
when introduced as it clearly offers an extremely attractive tax break to the
very wealthy. However, it was recognised by professional firms such as ours as
an effective way of engendering growth and diversity in the Manx economy. Over
6 years later the experience of this policy for all concerned appears to have
been positive.
The
Island has not been subject to an invasion of Bentley-driving super-rich
businessmen and women from across the water as there will always be more
glamorous places than the Isle of Man with low income taxes that will attract
wealthy residents. However, we have seen a steady flow of successful
entrepreneurs, mainly from the UK, taking the opportunity to relocate to the
Isle of Man bringing their businesses, jobs and spending power with them.
The
recent Budget speech given to the Manx Parliament in February 2013 by Treasury
Minister Eddie Teare MHK provided some fascinating statistics to demonstrate
the success of the Tax Cap:
“In the
year prior to its introduction the Government received only £2.8m from those
individuals who would have qualified for the Tax Cap. Compare that with the
latest information that I have and we are now collecting almost £10.5m directly
from our tax caps. However this is not the full picture because these
individuals also contribute to the economy in other ways including providing
over 370 jobs which generate in excess of £10m in income tax and NI.”
You
don’t need to be an accountant to recognise the impact an additional £17
million in tax revenues can make in an economy with total annual tax receipts
of around £485 million.
The
additional jobs and new business opportunities are also critically important
for the Isle of Man at a time when the economy is being squeezed from many
different directions. The Government itself is cutting jobs after a review of
its VAT sharing agreement with the UK greatly reduced its income from indirect
taxation whilst the problems faced by the previously reliable banking sector
are well known.
It must
also be explained that for the Tax Cap to be successful it has been essential
for the Isle of Man Government to develop a business-friendly approach to its
operations and for the local workforce to continue to prove it is highly
flexible as well as sufficiently skilled to deal with a variety of new
industries.
In my
opinion the only negative comment that can be made about the Tax Cap is that it
has not been promoted well enough. In typical understated Manx fashion, the
Isle of Man has not been promoting this as widely or as loudly as we should. I
suspect as income tax collection becomes an increasing priority for European
Governments we will see more and more wealthy “invaders” moving to the Isle of
Man to take advantage of the Tax Cap. Our message must be to get here quickly
and beat the rush!
STUART FOSTER
DIRECTOR OF PEREGRINE CORPORATE
SERVICES, DOUGLAS, ISLE OF MAN