14.01 RESIDENCE AND NON-RESIDENCE
An individual who is present in the Isle of Man for 183 days or more in the year of assessment is regarded as resident for that year. In theory, an individual who maintains accommodation in the Island for his use is also regarded as resident for any year in which he visits the Island, however short the visit. In practice, the Assessor will not pursue the liability to Manx income tax of such an individual provided:
- His visits or those of his wife or dependants, to the Island do not exceed 124 days in any two consecutive years of assessment, and
- He can prove tax residence status for income tax purposes outside the Island.
An individual who does not maintain accommodation for his use in the Island and who does not spend 183 or more days there during a year of assessment will nevertheless be regarded as resident if his visits to the Island, over four consecutive years, exceed an average of three months per year.
A person who regularly visits the Isle of Man to attend board meetings of companies of which he is a director will not be regarded as resident provided he complies with above the conditions listed.
An individual resident in the Isle of Man is liable to Manx income tax on his world-wide income.
Non-resident individuals are liable to Manx income tax on Manx-source income, subject to certain exemptions and concessions such as those concerning income derived from exempt companies and interest received from approved financial institutions.
No special reliefs are available for individuals who reside in, are domiciled in, or are nationals of other countries, nor are any reliefs available for income derived from non-Manx sources.
14.02 MARRIAGE AND CHILDREN
Isle of Man income tax is levied on the husband and wife as one single unit. The husband is responsible for making one annual tax return disclosing all income received by himself and his wife.
There is no mandatory separate taxation for husband and wife, but they may elect for separate taxation. An election for separate taxation cannot reduce the tax liability, it only provides for privacy in each spouse's financial affairs.
Unused personal allowances are fully transferable between husband and wife unless a separate assessment election is in force.
A child will only pay income tax if his/her income exceeds the level of the single personal allowance (£7,350 for 1999/2000).
14.03 TAXABLE INCOME
An individual's taxable income for a year of assessment is his aggregate income from all taxable sources, less deductions and personal allowances or reliefs.
The income of an individual from carrying on a trade or profession is computed in a similar way to the trading profits of a company. No deduction is allowed for the proprietor's own services to his business.
Investment income from both Manx and foreign sources must be included in an individual's taxable income. Foreign-source income is taken into account gross of foreign withholding taxes, but double taxation credit relief is normally available for foreign withholding taxes suffered.
Income from Employment
Employment income includes not only basic wages or salary but also overtime pay, leave pay, profit-sharing and other bonuses, commissions, tips, gratuities, or expense payments and allowances, and benefits-in-kind. Cost of living and educational allowances granted to foreign staff working in the Island are also taxed.
Categories of income exempt from Manx income tax include social security benefits such as sickness and maternity benefits and the capital element of purchased life annuities.
14.04 DEDUCTIONS AND RELIEFS
The figures quoted in this section are those for the tax year 1999-2000. A resident individual is entitled to deduct from taxable income each year a personal allowance as follows:
A married couple is entirely free to decide what share of the married couple's allowance is to be deducted by each spouse.
In the year of commencement or cessation of residence in the Island, the personal allowance is time-apportioned so that only that part relating to the period of residence in the Island is given. Therefore, for a single person resident for six months in the tax year, the allowance would be £3,675.
Non-residents are not entitled to personal allowances, except that a non-resident employed individual (for example, a seasonal worker) paying tax under the ITIP system is entitled a proportion of the single person's allowance.
Other personal deductions include life insurance premium relief, and reliefs for single parents and blind persons.
Contributions to approved pension schemes and certain statutory pension plans are deductible. A self-employed person or an employee not within an approved pension plan can deduct contributions to qualifying retirement annuity policies, normally up to a maximum of 17.5% of the individual's earnings for the year preceding the year of assessment; higher percentages are allowed for individuals aged over 35.
Interest paid on loans or mortgages can be deducted provided that the interest received by the lender or mortgagee is liable to Manx income tax or, in the case of a non-resident lender, that income tax (at the higher rate of 20%) is deducted from the interest payments.
In general, expenses incurred wholly and exclusively in acquiring the income from an individual's trade, profession, or employment are deductible in arriving at taxable income. Examples of deductible expenses are travel in the course of business or employment, tools and special clothing, and professional subscriptions. Non-deductible expenses include travel between an individual's home and his main place of business or employment, and trade union subscriptions.
The reliefs for losses allowed to individuals are similar to those available to companies.
14.06 PERSONAL TAX RATES
In the case of resident taxpayers, income tax is currently charged at 15% on the first £9,900 of taxable income for a single person and the first £19,800 for a married couple. The balance is taxed at 20%. A married couple is entirely free to decide how much of each spouse's income should be taxed at the 15% rate, provided that only £19,800 of their aggregate income is taxed at this lower rate.
Non-residents are taxed at a single rate of 20%.
14.07 SPECIAL TREATMENT OF FOREIGN NATIONALS
Generally foreign nationals who are not resident in the Isle of Man for tax purposes will not be eligible for personal allowances. However, seasonal workers suffering income tax under the income tax instalment payments method will be eligible for a proportion of a single persons allowance.
14.08 RETURNS, PERSONAL ASSESSMENTS, PAYMENTS, AND APPEALS
Every Manx resident who receives income, even if it has had tax deducted from it under the ITIP scheme, must make a return of income for each year ended 5 April. Income tax returns are normally issued shortly after the year end and the returns must be completed by 30 June.
As with companies, the Assessor has the right to raise an assessment on the income he considers is assessable. The taxpayer has a right of appeal against assessments unless they are default assessments.
Income tax is due and payable 7 days after the issue of an assessment unless it is appealed against.
The information given is not exhaustive and is based on conditions existing at 5 May 1999. Readers are advised to consult with professionals, such as independent accountants, legal counsel, and investment bankers, before taking any formal action. Deloitte & Touche would be pleased to discuss specific problems.