By Basil Bielich, director in Peregrine Corporate Services Limited
It was during my visit to Washington to attend the annual TAG Alliance conference that I started to think about the reasons people move from their country of birth to find a better life. It was the week prior to the United States Presidential election - one of the candidates campaigned to “Make America Great Again”; the other was campaigning for America to be “Stronger Together”. The local lawyers and accountants that I spoke to seemed to be unsure how they had been left with the choice between two uninspiring candidates.
It was my first visit to Washington and I was determined to use the time to find out more about the history of the city and of the country. During a visit to Mount Vernon, the home of the first US President George Washington, I started to think about the foresight that he and the other founding fathers had when they fought for their new nation. I decided that it would be appropriate to write about the benefits of living on the Isle of Man and why so many of us have decided to move here.
As Washington DC is the political heart of the US, Tynwald is the heart of the Manx nation. Tynwald, the Manx Parliament, is a direct legacy from our Viking ancestors.
The Island is situated in the middle of the Irish Sea, is approximately 32 miles long by 12 miles wide and currently has a population of approximately 85,000 people. The Island is not part of either Great Britain or the UK, but is known as a “Crown Dependency”. It is self-governing and is independent in all matters except for foreign relations and defence. The Head of State is the Queen who holds the title “Lord of Mann”.
The Island has a relaxed pace of life and is a secure place to live with low crime levels and is a fantastic place for young families to start a life together. However, behind this laid back life style is a vibrant and successful international economy which has driven over 30 years of continual growth.
In terms of Gross National Income ("GNI") per head of population, the Island is now ranked by the World Bank in the top nine (out of 217) international economies. Historically, this success has been driven by the finance sector; however, in recent times the Government has recognised the need for, diversifying its economy into other sectors such as high-tech manufacturing, Bio-Med, digital currencies, aerospace, international shipping, insurance, fiduciary services, superyacht management and aircraft registration and the space industry.
The Island is making a conscious effort to attract new businesses, building on its success in established sectors. As new businesses set up on the Island they benefit from other similar business
having a presence and soon clusters are formed. The Manx economy used to rely on tourism and agriculture before the growth of the finance sector. Tourism still accounts for 5% of the Island's economy: The TT motorcycling races, which take place for every June, is the main attraction for tourists.
The Isle of Man is not a member of the European Union. Under Protocol 3 of the UK's Act of Accession ("Protocol 3") to the Treaty of Rome Manx goods can be traded in the EU without tariffs. In conjunction with the Customs and Excise agreement with the UK, Protocol 3 facilitates free trade with the UK and further afield. However, whilst Manx goods can be freely moved within the EU, capital and services cannot. Currently there is some uncertainty on the effects of the decision of the UK leaving the EU but it is anticipated that the VAT sharing agreement with the UK will remain and it is hoped the Island will piggy back on the UK with regard to access to the EU.
The Isle of Man is inside the Common Travel Area ("CTA"), which also covers the UK, Ireland and the Channel Islands, for immigration purposes. This is a two-way arrangement whereby Isle of Man residents can travel freely within the CTA and persons legally present in other parts of the CTA are generally free to travel to the Isle of Man.
New residents will find that certain public services and benefits are not immediately available to them on arrival. For example, public authority housing is restricted to those with at least ten years' residence on the Island; five years' residence is required to qualify for Income Support and six months for Family Income Supplement. If a person is previously a UK resident and/or entitled to a UK state pension, then these rights are normally transferred to the Isle of Man and a pension is paid by the Isle of Man Department of Health and Social Security; however, those reaching state pension age after 6 April 2016 who have contributed to both UK and IOM state pensions through national insurance payments will have to make separate pension claims to each country. Over 60’s are entitled to free bus travel.
There is no estate tax, inheritance tax or succession duties on the Isle of Man. Together with no capital gains tax, a 0% income tax rate for companies (other than those investing in Manx land and property (20%) or conducting banking business (10% on certain profits) or in retail where profits are in excess of £500,000 per annum) and low rates of personal income tax (higher rate of 20%). This makes the Island an extremely attractive place from a taxation perspective.
There is no statutory legislation defining residence on the Isle of Man. Residence for tax purposes therefore tends to be based on UK case law and limited practice. The Assessor of Income Tax will generally regard an individual as becoming resident when they arrive with the intention of remaining on the Island. If individuals spend regular amounts of time on the Island each year (e.g. 90 days or
more) the Assessor will generally regard them as tax resident once a pattern of such behaviour is shown. If an individual is present on the Island for more than 183 days in a fiscal year (6 April to 5 April) then they will be regarded as resident.
The Isle of Man has a Key Employee Concession ("KEC") for employees required by their employers to relocate to the Island, where they bring new business to the Island. New business can consist of either a completely new company moving to the Island, or a new area of business being brought to the Island for an existing business. The KEC, which is available for a period of three years, broadly imposes tax only on the Manx source employment Income of qualifying individuals for a period of three years. There is also a work permit exemption for some new businesses moving to the Island, subject to meeting certain conditions.
The Island also has a tax cap system for High Net Worth Individuals, which an individual needs to elect into for five years. The tax cap system guarantees that an individual's Manx tax liability for a year is capped at £125,000 no matter how much income they earn in the year. If the tax actually due on income is less than the cap on average over the five year period, the taxpayer can elect to pay tax on an actual basis rather than a capped basis if it is beneficial. If a taxpayer ceases residence partway through the five year period, there is no need to continue to pay the tax cap for the remaining years of assessment after the year of departure.
Individuals can apply for their UK pensions to be paid gross. Investors can establish an Isle of Man company, which will pay tax at 0%, to house their investments, meaning that the investor will only pay tax when they extract funds from the company. There is a strict ordering regime for the taxation of profits designed to ensure only income profits are taxable and capital gains and capital is not inadvertently taxed. For individuals leaving the UK wishing to become domiciled in the Isle of Man, this also keeps their UK assets outside the UK inheritance tax net, once they have been domiciled in the Island for at least three years (or five years post 5 April 2017).
The Island's Government and private sector are continually working to grow the Island’s economy. There have been a number of initiatives such as an Economic Development Fund to provide funding for new businesses. In addition, new legislation has been announced to enable crowdfunding and an alternative banking licensing arrangement to facilitate financing of businesses.
The Island's future remains bright and it continues to attract new residents to its shores.
Peregrine Corporate Services is licensed by the Isle of Man Financial Services Authority.
