Isle of Man Budget 2022

16 February, 2022

Recently appointed Treasury Minister David Ashford presented his first budget to Tynwald on Tuesday 15 February.

With the Isle of Man, and the rest of the world slowly coming out of the pandemic, the focus was on stabilising the Island's finances whilst looking to invest in the future. In particular, cash was earmarked for a significant capital investment programme and to provide funding for a Healthcare Transformation Fund, looking to implement some of the recommended changes from a recent report.

From a tax perspective, there was little of note on the domestic front. However, there were two important markers put down for the future. Further details on these points can be found below.

Domestic Issues

On the domestic front, the messaging was clear. This is a period of economic uncertainty and so it would be unwise to make any unnecessary changes to the tax system which might add further cost or complexity to those trying to lead the Island's recovery. Tax receipts for the year just gone were relatively strong and that was obviously helpful in allowing the Minister to adopt this 'steady as she goes' approach.

The most notable change was an increase of £250 in the personal allowance available to Isle of Man residents taking the level of tax-free income that can be earned from £14,250 to £14,500 and in so doing, removing an estimated further 300 Isle of Man residents from paying Isle of Man income tax. The Treasury Minister also announced a change to the way in which tax relief for rental income received during the TT Homestay period will be granted.

This is a period of economic uncertainty and so it would be unwise to make any unnecessary changes to the tax system which might add further cost or complexity to those trying to lead the Island's recovery.

National Insurance

National Insurance (NI) is a headline item in the UK at the moment with increases to the main rates set to happen in April this year for both employees and employers. The Isle of Man Government commissioned a review of the Island's current NI system last year. The review was primarily concerned with the characteristics of the modern workforce and the changing pattern of employment. The desire is to have a NI system that operates evenly and proportionately with everyone paying their 'fair share' of NI - a situation which critics of the current system does not exist at present. As noted above, there is a feeling that Government needs to tread carefully at present to allow businesses time to regain financial stability and so Minister Ashford resisted the temptation to increase rates of NI or to make any significant changes to the way in which the Isle of Man operates NI. However, he acknowledged that the tax plays an important role in shaping workplace behaviours and remuneration approaches and so confirmed a consultation into 'key issues' in the coming months. We should expect that change in some shape or form will be coming in the future.

International Matters

International tax matters also received a notable mention as the Island, along with the rest of the global tax community, considers how to respond to recent global commitments made around the introduction of new international tax rules. These rules are focussed on two key points under two OECD driven workstreams known as Pillar One and Pillar Two:

Pillar One is concerned with the allocation of taxing rights for certain income and profits (i.e. where tax is due); and
Pillar Two is concerned with the introduction of a global minimum 15% corporate tax rate (i.e. how much tax is due).

It is important to note that these measures are aimed at large multinational groups i.e. those whose turnover is in excess of Euro 750 million per annum.

As part of a wider Strategic Review, the Isle of Man is reviewing the complex framework of rules issued by the OECD and the EU regarding Pillar One and Pillar Two and considering how they may impact the Isle of Man's own corporate income tax system. In this regard, announcements should be expected in the near future as to how the Isle of Man's own corporate income tax system will be impacted.

The Treasury will doubtless be keeping a close eye on a consultation currently being run by HMRC as the UK grapples with the same issue in respect of its own tax system. The focus of that review is how the Pillar Two proposals will impact the taxation status of UK based group holding companies as it is these entities that are most likely to be on the receiving end of tax assessments issued as a result of the Pillar Two rules. If this translates to the Isle of Man then it may be that any Isle of Man resident 'Topcos' of large international groups are those most likely to be impacted and this would restrict the impact of any change.

In his speech, the Treasury Minister was keen to stress that any changes are expected to impact only very large multinational businesses with Isle of Man-based operations and so the vast majority of the Island's corporate taxpayers should not expect much, if any, change to their tax status as a result of this review. However, this is clearly an important area to monitor as matters unfold.

Read full details about The Budget 2022 on the Isle of Man Government website.

If this translates to the Isle of Man then it may be that any Isle of Man resident 'Topcos' of large international groups are those most likely to be impacted and this would restrict the impact of any change.