Comment on the Isle of Man Budget 2017
Thursday 02 March 2017
Roy Callow, Senior Tax Consultant, Equiom Solutions outlines the main highlights of this year’s Isle of Man budget announcement and how it affects Island residents.
As Alf Cannan rose to his feet for his very first budget announcement since becoming Treasury Minister late last year, Tynwald awaited a change from the norm and weren’t disappointed. He led with a cut back on government spending, whilst attempting to ease the burden on low income earners – a difficult task considering the current squeeze on government income. Here are his highlights in relation to how these changes could affect Island residents.
He is budgeting for gross income to increase by 5% in 2017/18 and gross expenditure is to increase by 3%, thus moving to reduce the deficit. A large part of this increase is going to the Department of Health and Social Care and so other departments are feeling the pinch. However, he needs to close the gap quicker if the annual deficit is to be eliminated. He is setting up a team to look at ways of reducing department expenditure and is asking departments and the general public to put forward suggestions. The team will have to find ideas quickly, as his provisional budgets for the following two years only have 1% annual increases. Meanwhile, the deficit is being funded from reserves, although he is trying as far as possible to use only the income on the reserves each year.
The headline for the man in the street is the £2,000 increase in the income tax personal allowance from £10,500 to £12,500 with double this amount available to married couples. Unlike last year, where the increase in allowance was extinguished by the changes in the 10% band, this year’s change gives a tax reduction of £200 per person. For those aged over 65 the abolition of the age allowance does mean the whole of the benefit of changes in allowances is wiped out by the change in the 10% band. However, those with an income between £10,500 and £12,500, whether under or over 65, are the main beneficiaries.
For those having to pay for nursing care there is an increase in Nursing Care Tax Allowance from £9,300 to £12,500, bringing it back in line with the personal allowance where it was historically.
Turning now to how he is going to claw back some of this giveaway. Those with mortgage interest of more than £5,000, or £10,000 for a couple, will see a reduction in their tax relief with these amounts being the new maximum amounts relievable. With current interest rates this might not affect too many, but if interest rates increase then more and more will be hit with higher interest payable and lower tax relief.
The tax cap, which is a maximum amount payable in a year for those who apply for it, is being increased. However, because applications are for a five-year period - and it is being phased in - it is going to be 2025 before all of those paying the cap are liable for the eventual new limit of £200,000.
Class1 National Insurance rates for employees and employers have been frozen, as have Class 2 and 4 for the self-employed. Mr. Cannan also announced that the Class 2 contributions will be abolished from 6 April 2018, paid for by an increase in the main Class 4 rate from 8% to 11%.
In short, an interesting and bold budget from Mr. Cannan, but whether its aims will be sustainable remains to be seen.
For further information about the Isle of Man budget and to learn how Equiom can help you, please contact Roy Callow.