Treasury Minister Dr Alex Allinson MHK delivered his third Budget to Tynwald members on 18 February, describing it as a Budget for “stability, progress and fairness”.
While the Budget introduces a 1% reduction in the higher tax rate, bringing it to 21%, the Isle of Man continues to maintain higher taxation levels for individuals earning between £21,250 and £50,270 compared to the UK. Personal allowances received a modest increase, benefiting taxpayers slightly. Additionally, the National Insurance thresholds were adjusted in the aim to allow lower earners more financial flexibility, while pension payouts increased in line with the UK's triple lock policy.
Economic Overview
While the Isle of Man’s financial situation seems stable, there were a number of challenges faced over the past 12 months and arguably more to come for this administration. The ever- increasing pressures on health and social care and the long term viability of the Manx National Insurance Fund have been at the forefront of discussion in recent months. The reliance on reserves is perhaps more significant than previously forecast, and was an area that many MHKs touched on during the debate, saying that they felt the Government needs to find a way to reduce reliance on reserves.
Despite the continued uncertainty and economic disruption both locally and globally, the island’s businesses have continued to assist in economic growth, resulting in low unemployment and growth in jobs.
“A commitment to deliver on the ambitions of ‘Our Island Plan’. To deliver certainty for our businesses, to put more money in people’s pockets, to increase both consumer confidence and business confidence and to drive our nation forward.”
Personal Taxes
The temporary 2% increase, described as a ‘transition tax’, which was to be replaced by an NHS levy, from the 2024 Budget resulted in the higher rate of tax rising to 22%. The additional 2% was going to be ring fenced for the NHS. This has been reduced by 1% in this Budget, meaning a higher rate of tax of 21% for tax year commencing 6 April 2025. There was no definitive clarity given on whether the 1% is still an NHS levy and is still intended to be ring fenced. While there was a commitment to review this in the next Budget, there was no firm reassurance that we will see it return to the previous higher rate of tax at 20%. This means that for individuals earning between £21,250 and £50,270 the Isle of Man has a higher rate of tax than the UK where the rate would be 20%.
Personal allowances for individuals were increased by £250 to £14,750 and £500 to £29,500 for a married couple. For an individual who has earnings that are taxed at the higher rate of 21% this means they will be better off by £52.50 a year.
The tax cap has also been increased from £200,000 to £220,000, effective from April 2025. The tax cap is an irrevocable election made on an individual's Isle of Man resident income tax liability for five years. The increase to the tax cap will be effective for those who make an election after April 2025.
National Insurance and State Pension
The Budget has increased the Class 1 Primary and Secondary thresholds, along with Class 4 lower profit limit. This is to allow workers earning less than £49,000 to keep more of their money.
There was no change to Employer National Insurance contributions. The National Insurance Holiday scheme continues for returning Manx students but with effect from April will no longer be available to new residents.
The Basic State Pension, paid to over 14,000 people, and Manx State Pension paid to over 6,000, will rise by 4.1%, increasing the weekly payments to £176.45 and £251.30, respectively.
Both will continue to rise in line with the UK’s ‘triple lock’ policy. Although this will undoubtedly help our current pensioners in the Isle of Man, it does raise a question of how will the government address the ever impending exhaustion of the fund. As it stands and highlighted in ‘The Manx National Insurance Fund - Addressing the long-term sustainability of the Island’s Social Security Benefits and National Insurance Scheme’ the Manx National Insurance Fund is set to be exhausted in just over 20 years' time based on the current model.
Corporate Tax
We saw no changes in this Budget to any of the corporate tax regimes. The Pillar Two legislation was passed by Tynwald in November 2024 and came into effect from the 1st January 2025. The new tax regime is expected to generate an additional £10 million of income from 2027.
Future Outlook
As the current administration comes to the end of their term and with the election year just around the corner, it comes as no surprise that we have not seen any significant changes to any of the tax regimes.
Overall, while the 2025/26 Budget holds promises of continued support for the economy and households, critical questions remain about the long-term sustainability of the Manx National Insurance Fund and the effectiveness of measures aimed at stimulating growth in an uncertain global landscape. Looking ahead, the administration's ability to navigate these challenges will shape the future tax landscape of the Isle of Man.
If you have any questions in relation to the Isle of Man 2025-26 Budget, or any tax matters, please get in touch with us.
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