Moving to the Isle of Man from the UK

The list of things you need to think about in contemplation of such a move seems endless.

You will probably be aware that the Isle of Man has a very different taxation system to the UK, with lower rates of income tax, no capital gains tax, inheritance tax or stamp duty on local property purchases. These are some of the questions that we have recently fielded from people moving from the UK.

Is there anything I need to be aware of regarding the way my UK pensions will work in the Isle of Man?

An example of something that you may need to be aware of if you hold a UK personal pension (or “SIPP”) and haven’t yet taken your 25% “tax free cash” is that as an Isle of Man taxpayer, you may not be entitled to it.

Should I transfer my UK penson to an Isle of Man pension?

It all depends on your circumstances and what your objectives are. Taking this course of action may potentially be a way of preserving, or even enhancing the “tax free cash” to 30% in certain circumstances. There are other factors, such as a relatively attractive Isle of Man pension regime for passing any remaining pension pot to your beneficiaries on death. A full analysis of the pros and cons of transferring your pension is essential.

Are there any differences with how my investment bonds, listed shares and funds will be taxed in the Isle of Man?

Yes. For example, there is no 5% withdrawal allowance that holders of onshore and offshore investment bonds may have enjoyed as a UK resident. If you hold UK shares or funds with stored up capital gains, disposals made once you are an Isle of Man resident and a non-UK tax payer will not be subject to capital gains tax. Care is needed however because there is a UK tax rule stating that if you encash such assets and move back to the UK within five years of leaving, you will be liable for these capital gains when you once again become a UK tax payer. A similar “5-year rule” also exists for investment bonds.

I will be free from UK inheritance tax once I move to the Isle of Man, won't I?

Although the Isle of Man is not part of the UK and does not itself levy Inheritance Tax on estates, it’s not quite as simple as this. Whilst it’s relatively straightforward to cease being a UK tax payer and instead become an Isle of Man tax payer, freeing yourself from UK Inheritance tax can be more difficult and requires much more than just a physical move. In very basic terms you need to demonstrate the intention to move from the UK permanently and settle in the IOM permanently.This is a complex area where professional advice needs to be taken. Even if you take advice and put all necessary steps in place that you have been advised to, you will still be subject to UK inheritance tax on all of your assets for three years from this point. It is also important to note that after this three-year period has passed, you will always be subject to UK inheritance tax on UK based assets, such as UK investment bonds, shares listed on the London stock exchange and property etc. It therefore generally makes sense to reduce your exposure to UK based assets.

Will my ISAs retain any tax benefits in the Isle of Man?

The simple answer is “no”, any income produced from the underlying investments will be subject to Isle of Man income tax. The top rate of income tax is currently 20%.

These are complex matters and this is by no means an exhaustive list of the issues that need to be considered. As Chartered Financial Planners we are well equipped to help you navigate through this complexity, leaving you free to enjoy the things that are great about living in the Isle of Man.