Isle of Man

Find legal, tax and practice information for Isle of Man, and search for branches and members in the jurisdiction. If you have any comments on the report please contact [email protected]

*Updated July 2020*

Editorial Board

Paul Hotchkiss TEP, Hotchkiss Associates, Isle of Man
John Rimmer TEP, Advocate John Rimmer, Isle of Man

Important new developments

New legislation (the Charities Registration and Regulation Act 2019) has come into effect, updating the definition of 'charity', and amending the regulatory regime for charities.
The Isle of Man has negotiated a new 'OECD-style' double taxation treaty with the UK, which entered into force in April 2019.
The government introduced legislation entitled 'The Special Treatment of Key Employees replacing the old Key Employee Concession'. This law operates so that only Isle of Man-sourced rental and employment income is taxable for newly resident key employees for a three-year period and all other income (Isle of Man or otherwise) is not taxable for this period.
Further clarification on the tax residence of Isle of Man- and foreign-incorporated companies was introduced by practice note.
It is not possible to elect for the tax cap of GBP200,000 to apply for ten years.

Legal system

The Isle of Man is a British Crown possession and the Queen is head of state as Lord of Mann.

The island is a common-law jurisdiction. The common law generally follows English law, including equity. Decisions of English courts are not binding on Manx courts, but are highly persuasive. Ultimate appeal from decisions of Manx courts lies to the Privy Council of the United Kingdom.

The island’s legislature (Tynwald) is the oldest continual legislature in the world, at over 1,000 years. The UK Parliament has capacity to legislate for the Isle of Man, but this is rarely done in practice, and conventionally at Tynwald's request or by consent. While the UK government may intervene in the interest of good governance, it will not generally do so otherwise.

The island’s land law has different origins from English land law, although modern conveyancing practices closely resemble English conveyancing.

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Inheritance and succession

Succession

Property to which deceased people are entitled for an interest not ceasing at death forms their estate and vests in their personal representatives, who administer the estate.

There is freedom of testamentary succession, so an individual may broadly determine by will who is entitled to their estate. Wills take effect at death and are governed by the Wills Act 1985 (the Act). Under Manx domestic law, to be valid, wills must generally be in writing and signed in the presence of two independent witnesses, who must then sign the will in the testator’s presence. The Act permits wills to be formally valid under foreign law in some cases (see below). Where a will does not effectively dispose of assets, and subject to the rules of private international law (PIL, see below), statutory rules of intestacy apply to determine entitlement (under the Administration of Estates Act 1990).

Certain family members, civil partners, co-habitees and dependants can apply to the court for provision from an estate of someone who dies domiciled in the Isle of Man, if they believe that inadequate provision has been made by a will or the rules of intestacy, under the Inheritance (Provision for Family and Dependants) Act 1982 (the Inheritance Act).

As a matter of PIL, the broad principle is that Manx law governs succession to immovable property located in the Isle of Man while the law of the deceased’s domicile governs their movable property. The rules for formal validity are relaxed by the Act, permitting the valid execution of wills in the place of domicile, habitual residence or nationality of the testator or in the place in which it is signed.

Family law and defined inheritance rules

Apart from the Inheritance Act, there are no fixed rules for succession or community of property.

Probate process

Application is made to the court by the persons seeking its authority (by grant of representation) to administer the estate. The form for application, which includes an affidavit, is published online.

After swearing, the application is filed at court with an original death certificate, the court fee, any will and such other evidence as may be necessary in the case.

When satisfied, the court issues a grant of representation, which will be a grant of probate (where there is a will that names the applicants as executors) or a grant of letters of administration (where there is no will or it is not named executors who are applying for the grant of representation).

The persons to whom the court grants this authority are known generically as 'personal representatives'. Under a grant of probate, they are called 'executors'. Otherwise they are 'administrators'.

The duty of the personal representatives is to collect in the estate, discharge the liabilities and expenses of administration and to distribute the balance in accordance with entitlements under the will or rules of intestacy.

Mental capacity

The estate and affairs of a person (a patient) who is adjudged incapable of managing their affairs by reason of mental disorder and administered under the jurisdiction of the court (Mental Health Act 1998). This includes not only issues such as treatment and compulsory admission to care but to the property of the patient.

The court can appoint a receiver to administer the property of the patient, who is accountable to the court for actions carried out in that role.

A person with sufficient capacity may appoint an attorney to act under the Powers of Attorney Act 1987. A power granted under this act is known as an enduring power of attorney. Such a grant may extend to all such matters as an individual may lawfully delegate by power of attorney. Unlike other powers of attorney, the mental incapacity of the donor of the power does not revoke it but does mean that it must be registered with the court.

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Estate planning

Use of trusts in estate planning

Manx law allows the creation of trusts commonly used in common-law jurisdictions for private or commercial purposes, and permits non-charitable purpose trusts that comply with the Purpose Trusts Act 1996.

Occupational pension schemes and other special forms of retirement benefits schemes for international purposes are often formed using Manx trusts. Manx-resident trustees of trusts with Manx-resident beneficiaries (or objects) report these trusts to the assessor of income tax if there is taxable income. Charitable trusts must be registered with the Attorney General under the Charities Registration and Regulation Act 2019, unless exempt under the Act.

The Hague Convention on the Law Applicable to Trusts and on their Recognition, 1 July 1985 has effect in the Island. This means that a trust need not be created only under Manx law to be effective in the Isle of Man.

Where chosen as governing law, Manx domestic law (that is without reference to private international law) determines most issues concerning disposition of property on trust, terms of the trust and interests, rights and duties of trustees and beneficiaries (Trusts Act 1995). Foreign laws still govern formalities for the transfer of non-Manx assets and existence and capacity of a foreign entity. Foreign laws (including laws concerning heirship to property), and foreign court orders designed to give them effect, are otherwise largely excluded from application to Manx trusts.

Domestically, trusts are rarely formed for the mitigation of tax for persons resident in the Isle of Man. There may be good tax reasons, however, to form them where the settlor is resident and/or domiciled in the Isle of Man and the beneficiaries are resident in other countries, such as the UK. There may also be good family reasons to create trusts and to frame them accordingly.

Use of foundations in estate planning

The Foundations Act 2011 allows the creation of foundations in the civil-law sense, allowing the dedication of property to charitable and non-charitable purposes. Their use is largely akin to that of a trust, being for (allowable) purposes or for the benefit of beneficiaries.

Unlike trusts, they have separate legal personality. They are administered by a council who occupy a fiduciary position. Their familiarity to individuals from civil-law countries means that foundations may have greater appeal to them.

Types of entities

Companies may be formed (under the Companies Act 1931 and Companies Act 2004 (much like traditional English companies) or under the Companies Act 2006 – more akin to British Virgin Islands international companies).

The liability of members may be limited by shares, limited by guarantee (with or without a share capital) or unlimited (with or without a share capital).

US-style limited liability companies (LLCs) also exist on the island (Limited Liability Companies Act 1996).

Partnerships (and limited partnerships) can be formed (Partnership Act 1909). They generally do not exist as separate legal entities, although limited partnerships can elect for separate legal personality when they are established.

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Taxation

Income tax system

The Isle of Man has adopted the worldwide basis of taxation.

Personal income tax rates

Isle of Man-resident individuals are entitled to a personal allowance and are taxed on income above this at rates of 10 per cent and 20 per cent, subject to a tax cap of GBP175,000 per year. Since 6 April 2013 taxpayers have had to elect into the tax cap regime, prove they have sufficient income and agree to pay the tax cap for a period of five years. In the 2017 Budget, it was announced that the tax cap would increase, from 6 April 2017, by GBP25,000 per year, up to a maximum of GBP200,000 from 6 April 2020. If an election is made in any year, the capped amount in that year will apply for five years. Elections need to be made in advance of a tax year unless exceptional circumstances apply. Once an election is made, the tax cap will be fixed for five successive tax years. If an individual ceases residence in this period, they can opt out of the requirement to pay the cap (although will still be taxable under the tax cap until the end of the year of assessment in which they leave). Further, if their actual tax liability is less than the capped amount over five years, they can choose to be taxed on an actual basis.

Corporate income tax rates

Isle of Man-resident companies (by incorporation or central management and control) are subject to income tax at 0 per cent, subject to three exceptions. Companies engaged in banking business are taxable at the 10 per cent rate on certain banking profits and retail businesses with profits above GBP500,000 are also subject to the 10 per cent rate. Companies deriving their income from the exploitation of land and property on the island are subject to income tax at 20 per cent.

It is possible for any company to elect to be taxed at a flat 10 per cent rate. The election is irrevocable and valid for a five-year period.

Capital gains tax

There is no capital gains tax imposed on the disposal of assets.

Non-residents taxable on

Non-residents are not entitled to a personal allowance and are subject to income tax at a flat rate of 20 per cent on Manx-source income, subject to the operation of any relevant double taxation treaty (DTT). From the 2006/07 year of assessment, tax charged on the Manx income of a non-resident individual will be subject to a limit. The limit is defined as the sum of (in both cases ignoring the personal allowance):

The tax that would be due on Manx income reduced by any excluded income.
Tax deducted at source from any excluded income.

Isle of Man-sourced rental income, employment income and pension income is subject to withholding tax at 20 per cent.

Withholding tax rate (non-treaty)

When a company makes a payment to a non-resident, the rate of withholding tax applicable (0 per cent/10 per cent, or 20 per cent) will depend on a number of factors, including the type of payment being made, the Manx tax rate applicable to the company making the payment, and the recipient of the payment.

Isle of Man-sourced rental income, employment income and pension income is subject to withholding tax at 20 per cent.

Withholding tax rate (treaty)

The Isle of Man has limited DTTs.

Taxation at death

There are no death taxes imposed on the estates of deceased persons.

Other taxes

There are no gift taxes, estate duties or inheritance taxes imposed on the Isle of Man.

Tax treaties

The Isle of Man has entered into a number of double taxation agreements (DTAs) and shipping and aircraft agreements. There are ten DTAs with 23 countries (one of which is still to come into force) and 11 shipping agreements. The DTAs alone are listed at www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/international-agreements/double-taxation-agreements/

Tax information exchange agreements

The Isle of Man has entered into TIEAs with 36 countries (seven of which await ratification). The Isle of Man has entered into the Mutual Assistance Directive, which means that the number of countries with which the island will exchange information is significantly larger.

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Residence and domicile

Special rules on becoming resident

The Isle of Man forms a common immigration area with the UK for most purposes. Becoming Isle of Man-resident for an EU national has therefore been relatively straightforward. The Isle of Man is not part of the EU, however, so the position in a post-Brexit era is not entirely clear. At the time of writing, it appears that the UK will not permit continued freedom of movement. Still, when someone is entitled to reside in the UK in the future, it can be expected that they will still be able to live in the Isle of Man.

For tax residence, there are no special rules although guidance is available. It is set out in statute, that if an individual spends more than 183 days in any tax year on the island they will be treated as resident for the entire tax year.

The Isle of Man adopts similar rules to those set out in the old UK residence practice and case law. As a general rule, the assessor regards a person as resident if they spend 90 days per annum on the Isle of Man on average over a four-year period.

Individuals are Isle of Man-resident for complete tax years, and while there are no specific rules or guidance on splitting the tax year, it is the practice of the Income Tax Division to split the tax year from the date of arrival or departure. The assessor takes the view that individuals will be regarded as tax-resident only if they are genuinely present on the island.

Special rules on ceasing residence

There are no special rules on ceasing residence except note the practice set out above on splitting the tax year.

Domicile concept for gifts and inheritance

There is no concept of domicile on the Isle of Man for taxation purposes. It remains important for the purposes of PIL, especially regarding gifts of movable property, and matters of personal law (such as aspects of family law).

Taxation of holdings by non-residents on death and of gifts

Gifts
Death

There is no taxation in respects of holdings by non-residents on gifts or on death.

Reporting/auditing requirements

No.

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Other relevant information

Asset protection laws

No.

Foreign currency restrictions

No.

Foreign ownership restrictions

No.

AML/due diligence and other requirements and regulatory procedures for advisors

To establish a trust or foundation: service providers acting in or from the Isle of Man must generally be licensed and will be subject to regulatory legislation. A service provider must collect enough relationship information in order to risk-rate its client (for example, geographical areas of business, pattern of expected business activities, source of wealth and source of funds and screen all connected parties), to assess the risk of criminal money laundering and terrorism funding. The service provider must have enough information and documentation to make an informed decision on its client and the structure. For a trust this means verifying the identity of other trustees, protectors and known beneficial objects.
For incorporation: the broad requirement for collection of information is as for trusts (above). The principal requirement for companies is to look behind the ‘legal person’, to identify and verify those who have control over the business and the company’s assets, including those who have ultimate control and ultimate principal ownership.
To open a bank account: the broad requirement for collection of information is as for trusts (above). Again, all of the above is required, requiring original certified documents. Funds will not be accepted until due diligence is held. Identity-verification documents must be in place and source of funds established.

Key resources for further information

WEBSITES

Isle of Man Government: www.gov.im
The Financial Services Authority: www.iomfsa.im

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