A helping hand for Manx residents in this year’s budget

Tuesday 27 February 2018

Roy Callow, Senior Tax Consultant at Equiom Solutions, gives a summary of the highlights in the recent Manx Budget announcement and their effect on Isle of Man residents and businesses.

Although he faced some opposition, Treasury Minister Alf Cannan MHK was very upbeat in his budget speech. The fact that the anticipated surplus for the 2017/18 is estimated to be around £18million as compared to the budgeted amount of just under £3million, has given him a little more room for a few giveaways. However when transfers from reserves are taken into account there is still quite a significant deficit that needs to be reversed in the next few years.

Looking at the tax measures in Mr Cannan’s budget, the one that is a headline grabber is the increase in personal allowance, as it affects a large part of the population. For an individual the allowance will increase from £12,500 to £13,250, which is an increase of 6% and higher than most measures of inflation. This means a reduction in tax payable of between £75 and £150 for an individual as long as income exceeds £13,250. For jointly assessed couples these figures double in most cases.

While the previous Treasury Minister had indicated his preference to move, over time, to a single rate of tax of 20%, there was no move this year to reduce the 10% band. There were other announcements which will benefit some people. The Cycle to Work Scheme brought in last year, which provides employees with tax- free bicycles and equipment has been extended to include electrically assisted bicycles. This is all part of the Government’s push under its ‘Active Travel Strategy’ to encourage alternative means of travel.

Another change announced in respect of benefits in kind provided by employers is a welcome increase in the de minimus benefits that can be provided without triggering a tax charge. If the total benefit provided does not exceed £600, previously £400, then the benefit is exempt from tax. The £400 figure has been in place for many years but the increase probably exceeds the inflation amount.

Although the amount that can be claimed for nursing expenses has remained at £12,500, previously equal to the personal allowance amount, relief is available for certain physiotherapy services from 6 April 2018.

In the last few budget speeches there has been much made of people ‘abusing’ the zero rate of tax for companies, with each Treasury Minister indicating they had instructed the Assessor to investigate these ‘abuses’ with a view to bringing measures in to counter these actions.

The matter came to light again this year as the budget has seen new legislation brought in under a temporary taxation order to bring provisions to tax certain loan repayments. Where loans to companies have been created at any time since 6 April 2011 by transferring goodwill or unquoted shares to a company, then repayments of these loans from 20 February 2018 will be treated as if they were a distribution by the company and subject to tax, but taking into account the concession set out on PN174 and related GN49 guidance.

These new rules are even harsher where the transfer of these types of asset occurs from 20 February 2018. The value of the loan created will be treated as a distribution on the date of the transfer.

Transactions with these types of assets have led to much correspondence between the tax office, companies and their advisers over the last few years. This new measure may put an end to some of the correspondence but will not resolve all of the issues, and could lead to new problems. Individuals with Isle of Man companies where there are loans in place relating to the transfer of goodwill or unquoted shares, should ensure they take advice sooner rather than later.

All in all, it was a positive budget for Isle of Man residents. For local businesses there are likely to be further changes to watch out for. 

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