Isle Of Man Budget Announced

by Jason Gorringe, Tax-News.com, London

21 February 2011

Isle of Man Treasury Minister Anne Craine has released the Island's 2011/12 Budget, containing numerous measures to eliminate tax reliefs, and the Attribution Regime for Individuals, whilst maintaining all headline rates.

Against the bleak forecasts presented last year, when the government warned it would be required to draw down GBP114m in reserves to balance its budgets over the next five years - primarily as a result of the economic downturn and revised UK VAT-sharing agreement – presenting her latest Budget, Craine was enabled to give the 'all clear' on the fiscal outlook for the island.

Craine reported that for 2010/11 - to end on April 6, 2011 - tax revenues have so far been strong, coming in at around GBP17m above plan, of which GBP10m was a one-off VAT arrears payment. Better than expected employment boosted income tax revenues GBP6m above that budgeted.

A small surplus in 2010/11 of GBP1.7m is expected to be mirrored in the forthcoming fiscal year, with the increase in the VAT rate - in line with the UK's - expected to bolster the tax take by GBP25m in a full year.

This increase to the VAT, will be supported by further measures, which the Treasury Minister said would provide greater fairness in the island's tax regime. These include changes to personal taxation, and in particular National Insurance Contributions, but also tax relief for students and interest relief on housing.

National Insurance Changes:

There will be no changes to the standard personal allowances; the basic allowance for a resident individual will remain at GBP9,300, and GBP18,600 for jointly-assessed married couple. In addition, the single parent allowance; blind or disabled person's allowance; and the age allowance will remain at their current levels.

The Personal Allowance Credit is to be enhanced. The relief, which is paid to resident individuals who do not fully utilise their single or married couple's personal allowance, is to be increased by 7.7% to GBP700 in respect of payments made for the tax year commencing April 6, 2010, which are paid after April 6, 2011. The current upper income limit is GBP9,300, doubled for couples.

Since the tax year commencing April 6, 2010, individuals who are in full-time education, individuals serving a custodial sentence for the whole of the year, and individuals whose spouse has their income tax liability capped, can no longer be eligible to receive a PAC.

Lastly, tax relief in respect of Class 4 National Insurance Contributions is abolished with effect from the 2011/2012 tax year.

Interest relief on housing:

The government has announced a measure to prevent taxpayers from claiming interest relief on housing in respect of multiple housing. Craine said that interest relief should be restricted to the mortgage on one main home and that the level of relief should be set at a level consistent with that required to buy a first time buyer's property under the Government's house purchasing assistance scheme – currently GBP150,000.

To be introduced from the 2011/12 tax year onward, the deduction available to an individual in respect of interest paid on loans or mortgages will be reduced to a maximum limit of GBP7,500, and for a jointly-assessed married couple to GBP15,000. These maximum thresholds, Craine said, were calculated on the basis of a 5% rate on a GBP150,000 mortgage, and have been considered “reasonable”.

This change is expected to affect 500 jointly-assessed couples, and just over 200 individuals, and is expected to result in GBP490,000 in extra revenue per annum.

Tax Relief for Students:

Tax relief in respect of educational deeds of covenant is to be restricted to payments made under covenants that have been entered into on or before April 5, 2011, where the student is in qualifying full-time education at that date. According to the government, 832 claims are filed in respect to educational deeds of covenant, with the annual cost of the tax relief estimated at GBP760,000. Relief for existing covenants will have a run-off period of around three years.

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