Isle of Man budget 2024: a budget of transformation

The Treasury Minister Dr Alex Allinson delivered his budget speech on 20 February 2024. Kevin Cowley, Director, and Amanda Reid, Manager, at Equiom Tax Services summarise the key points covered in the budget below.

Income Tax

Following several Isle of Man (IOM) budgets with minimal tax-related highlights, this year's IOM budget captured widespread attention by announcing an increase in the higher income tax rate for individual taxpayers from 20% to 22%. The change will take effect from 6 April 2024 and will represent the first increase in the IOM’s higher tax rate since 6 April 2010.

The Treasury Minister announced this increase in rate as a potentially temporary measure, his aim to introduce a separate tax (the NHS levy) to replace it from 5 April 2025. Whether or not the NHS levy becomes a reality, however, remains to be seen. It is estimated that the 2% increase will generate £20 million in additional revenue which will be ring-fenced, specifically to be applied for the NHS.  

For an individual with income below £21,000 per annum, the 2% increase will not affect their tax liability. However, any income earned over this amount will be subject to a further 2% income tax charge. By way of example, for an individually assessed person, earning a salary of £35,000 per annum, the increase in tax rate will equate to an additional £280 tax a year.
Last year’s budget introduced a tapered reduction to the personal allowance for any IOM resident with annual income above £100,000. An IOM taxpayer with income of £129,000 or more will not receive any personal allowance at all. This means an effective rate of IOM tax on income in the band £100,000 to £129,000 of 33%, a rate which may come as a surprise to some given the Island’s history of low personal taxation rates. Whilst IOM higher rates are still clearly below the UK’s headline income tax rates, the gap between the two jurisdictions is narrowing and the impact of these increases in attracting economically active individuals and businesses to the Island remains to be seen.

Another notable change to the IOM income tax pertains to the updated method for calculating the benefit in kind for car and fuel allowances.  The details can be found in the Income Tax Division’s Practice Note 223/24 and we would recommend that anyone who has a car and/fuel benefit, reviews how the new calculation will affect them (and considers contacting the Isle of Man Income Tax Division to ensure their tax code accurately reflects the impact of the changes from the 6 April 2024 to avoid a shock when the income tax assessment for the year is received).  

National Insurance

There were no significant changes to national insurance included in this year’s budget, although the increase in primary threshold and upper earnings limit will result in a small reduction of £85 per annum of national insurance for anyone earning over the minimum wage.

The Treasury Minister referenced two initiatives in this area that are forecast to come to fruition in the 2025/26 and 2026/27 tax years. These measures were set out in the 2024 Tax Strategy (see below).

Corporate Tax

A tax rate increase from 10% to 15% was announced for certain banking business and large retailers whose profits fall under the OECD’s Pillar 2. This is in line with proposals put forward in May 2023 and should not come as a surprise to those corporates it will impact. The key point here, is that this measure demonstrates the Isle of Man Government’s continuing desire to adhere to the global policy of clear and fair taxation.

The Tax Strategy

An important feature of the budget was the confirmation of a new Tax Strategy which identified 7 priority actions that the Isle of Man Government intends to consider. The strategy may inevitably lead to further measures to ensure the balancing of government expenditure and raising revenue over the Medium-Term Financial Plan. The 7 priority actions stated are:

1. Implementation of a minimum effective tax rate of 15% for multinational enterprises
2. Review the scope of Isle of Man businesses that are subject to positive rates of corporation income tax, whilst retaining the 0/10% system and not weakening the Island’s competitiveness
3. Introduction of an NHS levy to generate ring fenced funding for the NHS
4. Review of the National Insurance system in relation to Owner Managed Businesses
5. Investigation of affordable tax policies to promote productivity and increase the Island’s economically active population
6. Continued monitoring potential developments in international tax standards
7. Implementation of the 2023 changes to the International Standards for Automatic Exchange of Information in Tax Matters

The Minister emphasized that the Tax Strategy will not introduce new taxes on capital or wealth, a reassurance aimed at preserving the island's appeal to the affluent demographic they seek to attract.

Summary 

This budget will no doubt receive mixed reviews from a pure tax perspective. The need to generate additional tax revenue in challenging economic circumstances will be understood and accepted by most. However, the additional forthcoming tax cost for middle earners in the IOM will put further pressure on household budgets and may have a detrimental impact on the IOM’s attractiveness from an international perspective. The introduction of the new Tax Strategy would therefore seem to be crucial if the IOM is to continue to reduce its annual budgetary deficit and to meet its overall strategic economic objectives in the longer term.  

Equiom Tax Services Limited offers both global insight and local knowledge to advise individuals and businesses facing a diverse range of international tax challenges. Get in touch with Kevin Cowley if you have any questions regarding any of the above topics, or to discuss how Equiom can support you.

This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. This article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained within this article without obtaining specific professional advice. Please contact Equiom Group to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees, and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.