Contributed By DQ Advocates Limited
Isle of Man Taxes – Individuals
There are no capital gains or inheritance taxes in the Isle of Man, and no taxes on lifetime gifts or on transfers on death. When a grant of probate is applied for after the death of an individual, a fee is payable based upon the gross value of their Isle of Man estate.
For the tax year 2019-20, individuals are entitled to a tax-free personal allowance of GBP14,000. For any income over and above this amount, income tax is charged at the standard rate of 10% on the first GBP13,250 of additional income and at the higher rate of 20% for any further income. There is a maximum tax cap of GBP150,000 for a single person (GBP300,000 for couples) for the tax year 2018-19, subject to a five-year election. It is possible for married couples to be assessed jointly.
Although there are no purchase taxes on the Isle of Man in respect of real property, a recordal fee is payable to the Isle of Man government upon registration of a purchase. The recordal fee is currently GBP5.70 for every GBP1,000 of value of the property, or GBP75, whichever is higher.
Value Added Tax (VAT) is payable in respect of most sales of goods and the provision of services. The Isle of Man is considered a part of the UK for VAT purposes.
The standard rate of VAT is currently 20%, with a reduced rate of 5% payable on certain items.
Trusts and Foundations
Trusts are recognised in the Isle of Man, with trust law similar to that in England and Wales, based on common law. Foundations were introduced into law by the Foundations Act 2011. Purpose trusts may also be created under the Purpose Trusts Act 1996.
Foundations are taxed as corporate taxpayers, pursuant to the Income Tax Act 1970.
A trust will fall within the scope of Isle of Man tax if it has at least one trustee resident in the Isle of Man, or where the administration of the trust is conducted in this jurisdiction.
The Assessor of Income Tax operates a 'look-through' approach to trusts in cases where beneficiaries have an absolute right to trust income. In such cases, they will be taxed on that income as if it accrued to them directly.
The tax treatment of discretionary trusts is dependent upon the distribution of income.
If trust income is not distributed, and if none of the beneficiaries is resident on the Isle of Man, undistributed income will be subject to the same amount of tax as would be charged if the same type and amount of income had been received by a non-resident individual. If trust income is not distributed, and if at least one of the beneficiaries is resident on the Isle of Man, undistributed income will be subject to Isle of Man tax.
If trust income is distributed, the beneficiaries will be taxed according to their residence status: (i) non-resident beneficiaries are taxed in the same manner as beneficiaries who have an absolute right to income (the so-called look-through approach described above) and (ii) resident beneficiaries are subject to Isle of Man tax on any income distributed to them (to the extent that such income has not already been taxed in the hands of the trustees).
The Isle of Man has an extremely stable government and tax regime.
In 2000, Tynwald (the Isle of Man’s parliament) approved the Isle of Man Treasury’s taxation strategy based on the principles of acceptability, simplicity, competitiveness, high return and sustainability. In 2002, the Isle of Man gave a commitment to two major EU initiatives: the Code of Conduct for Business Taxation and the Directive on Taxation of Savings Income in the Form of Interest Payments (EU Savings Directive). The strategy was modified in 2002 to commit to bringing in measures equivalent to the EU Savings Directive in the Isle of Man and to introduce the ‘0/10’ rate of corporate tax.
On 19 December 2011, the EU’s Economic and Financial Affairs Council (ECOFIN) confirmed that the Isle of Man’s 0/10 corporate tax system is compliant with the EU Code of Conduct for Business Taxation.
The Isle of Man is a ‘tax transparent’ jurisdiction and has signed Memorandums of Understanding with various countries, including the United Kingdom. The agreement with the UK includes the automatic exchange of a wide range of financial information on UK taxpayers with accounts in the Isle of Man.
The European Savings Tax Directive came into force in 2005 in the Isle of Man, with the aim of ensuring that interest payments in a participating country are subject to effective taxation according to the laws where the beneficiary is resident. An automatic exchange of information on interest payments made to individuals resident in EU member states has been in place since July 2011.
In order to enhance the Isle of Man’s competitive position as a leading finance centre and to fulfil its obligations to the Organisation for Economic Co-operation and Development (OECD), the Isle of Man developed a package of commitments covering information exchange, business transparency and preferential tax regimes.
The Isle of Man government participated in discussions with OECD member countries in March and July 2001 concerning the development of a model vehicle for the exchange of information concerning tax matters. As a result, an Agreement on Exchange of Information on Tax Matters was produced in 2002, outlining two models for bilateral agreements drawn up in light of the discussions.
Based on these models, the Isle of Man entered into its first Tax Information Exchange Agreement (TIEA) in 2002, with the USA, in order to meet the OECD’s international standard on tax transparency and co-operation. Subsequently, the Isle of Man has signed more than 30 TIEAs.
In addition, the Isle of Man has double taxation agreements with many countries to try to ensure that people do not pay tax twice on the same income. The double taxation arrangement includes an agreement to disclose information necessary to prevent fraud and to counter the avoidance of tax. The Island’s first double taxation treaty was entered into with the UK and it has since signed 22 further double taxation treaties, with Australia, Bahrain, Belgium, Denmark, Estonia, Faroe Islands, Finland, Greenland, Guernsey, Iceland, Ireland, Jersey, Malta, New Zealand, Norway, Poland, Qatar, Seychelles, Singapore, Slovenia, Sweden and, most recently in April 2013, Luxembourg.
The Isle of Man has also entered into a Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement with the USA and a similar agreement with the UK.
As a result of these and other steps taken, the Isle of Man received a positive peer review in the Final Report of the Independent Review of British Offshore Financial Centres (the Foot Report), which was published in October 2009. The report considered the role of the Crown Dependencies and overseas territories in the UK economy, and praised the Isle of Man as a well-regulated and co-operative jurisdiction with a sound and diverse economy.
The OECD developed the Common Reporting Standard (CRS) as a global reporting standard to achieve a single, comprehensive and multilateral framework for the automatic exchange of information. As an early adopter of the CRS, the Isle of Man’s first reporting deadline was 30 June 2017. Under the CRS, financial institutions are required to collect additional information from customers to identify those who are resident for tax purposes in CRS participating countries and to exchange certain information about account-holders and accounts held by individuals within the relevant CRS countries. At the time of writing, there is an ongoing consultation regarding the creation of a Beneficial Ownership Register on the Isle of Man to increase transparency.
The Beneficial Ownership Act 2017 came into force to enhance the current commitment between the UK and the Isle of Man and focuses on the transparency of information regarding the beneficial ownership of corporate and legal structures.
The Isle of Man was subject to new legislation on Substance Requirements of the Income Tax Act 1970 (ITA) that came into force on 1 January 2019. In essence the new legislation requires that in order to be an Isle of Man registered company for tax purposes, there needs to be evidence of the company generating its income on the Isle of Man through a relevant sector.
In February 2014, the Isle of Man Treasury announced that the income tax cap for individuals would be subject to a five-year election. This move has been viewed by many as an anti-avoidance measure.
Schedule 1 to the Income Tax Act 1980 also contains provisions for the purpose of preventing the avoidance of liability to income tax.
In November 2017, the Isle of Man retained its top ‘Compliant’ rating from the OECD, being only one of six countries to be awarded the top rating during the second round of OECD reviews.
There are no notable cultural factors in the Isle of Man that have an effect on succession planning. The Isle of Man does not impose gift, inheritance, wealth, estate, capital gains or death taxes or duties. A probate fee is due to the Isle of Man government upon submission of an application for probate.
Isle of Man succession law makes a distinction between movable and non-movable assets; as a general rule, the laws of the Isle of Man will apply to non-movable assets while the laws of the jurisdiction of domicile of the deceased will apply in respect of non-movable assets.
The international nature of many people's lives can lead to challenges when preparing an Isle of Man will or administering an Isle of Man estate. In order to avoid potential conflicts between different applicable laws, it is important to consider the nature and location of the assets of the client, and their domicile.
Because of the potential for conflict, it is important to consider whether separate wills are required for assets in separate jurisdictions, and to ensure that such wills are drafted carefully so that one does not inadvertently revoke the other.
Complete freedom of disposition is a key characteristic of Isle of Man law; there is no right to inheritance and no forced heirship laws.
However, it is still necessary to consider forced heirship laws when preparing an Isle of Man will or administering an estate. If a person owns foreign assets, and particularly non-movable assets that may be subject to forced heirship, then they should generally make a will and take specific advice in that jurisdiction even if domiciled and resident in the Isle of Man.
There is also one important caveat to the freedom of testamentary disposition in the Isle of Man. The Inheritance (Provision for Family and Dependants) Act 1982 provides for various classes of person to be able to make a claim against a person’s estate if the disposition effected by either the deceased’s will or under the laws of intestacy – or a combination of the same – does not make reasonable provision for the applicant.
The Trusts Act 1995 (the Trusts Act) expressly overrides any other forced heirship regimes in other jurisdictions in relation to a trust governed by Isle of Man law.
The concept of community of property does not exist under Manx law.
Nuptial agreements are not binding in the Isle of Man and cannot be used to override the discretion of the Isle of Man courts in determining how assets are distributed.
When considering an application for financial remedy, the Isle of Man courts may give weight to a nuptial agreement as a relevant circumstance. This was the case when the Judicial Committee of the Privy Council (the highest appeal court in the Isle of Man) gave its judgment in respect of the case of MacLeod v MacLeod  UKPC 64, where the judges largely upheld the terms of the postnuptial agreement made between the parties.
The Isle of Man does not have any capital gains taxes or an inheritance tax regime that can affect the cost basis of property upon a transfer in other jurisdictions.
See 3.1 Types of Trusts, Foundations or Similar Entities.
The Isle of Man has very little specific enacted or proposed legislation at consultation stage dealing with digital assets on death. With the increase in digital currency business and e-gaming on the Island, there is a need for legislation to keep up with the forever-changing nature of digital assets. The Isle of Man could take its lead from the USA, which has created and enacted laws that protect an individual’s digital assets and provide the individual’s family with the right to access and manage those accounts after the owner has died.
A digital asset is content owned by an individual that is stored in digital form. Digital content includes individual files such as images, photos, videos, text files, email accounts, social media accounts, blogs, IP, virtual property and digital currency. They are assets with a tangible value, but that only exist online. These assets are stored either on a device owned by an individual (‘locally’) or on devices accessed via the internet (‘in the cloud’), often as part of a service offered by a third party and governed by a contract with the individual. Digital assets can be just as precious and important as physical assets, and many possess monetary and/or sentimental value. There is not one unified definition of ‘digital assets’ in Isle of Man statute.
Currently in the Isle of Man, access to digital assets is usually governed by the terms of a service agreement rather than by property law. This may create problems when internet users die or otherwise lose their ability to manage their own digital assets.
The contract between the service provider and an individual governs how digital assets can and will be dealt with. This usually means that, on death, the contract ceases and the executors/trustees cannot access the digital assets without having to go through a rigorous process, which can cause delays and risk devaluing the digital asset.
Organisations and individuals need to take sensible precautions to ensure that succession of their assets takes place. These precautions could include the following examples:
In addition, there is an added risk of losing personal information/data (such as passwords and bank account details) that is the property of the deceased rather than the executor/trustee, who could be found to be breaching the terms of the service agreement, committing identity fraud under the Fraud Act 2017 or even committing an offence under the Computer Security Act 1992.
In the Isle of Man, it is possible to form a company under the Companies Acts 1931–2004 or under the Companies Act 2006. The former broadly follows comparable UK legislation, whereas the latter is based on international business models found in other offshore jurisdictions. The Isle of Man also allows for the formation of protected cell companies, incorporated cell companies and limited liability companies.
A limited liability company (LLC) may be created under the Limited Liability Companies Act 1996 (the LLC Act). An LLC has legal personality and capacity for the exercise of its purposes and powers. The liability of members is limited to the extent of their contribution. Restrictions are imposed on the transfers of members' interests in the LLC. The management of the LLC is vested in the members in proportion to their contribution, and as permitted by the LLC Act. The LLC must be wound up on the happening of certain events, such as the death or resignation of a member. The profits of the LLC are treated as the income of the members for the purposes of income tax. LLCs are particularly useful as joint venture vehicles where limited liability can be maintained but the vehicle is treated for taxation purposes as a partnership. Additionally, they can be used for asset financing and aviation and shipping-related activities.
The Protected Cell Companies Act 2004 (the 2004 Act) allows for the incorporation and conversion of companies constituted as protected cell companies, which are permitted to create one or more cells for the purpose of segregating and protecting cellular assets as provided in the 2004 Act.
The Incorporated Cell Companies Act 2010 (the 2010 Act) provides for the incorporation and conversion of companies as incorporated cell companies with incorporated cells. An incorporated cell company creates incorporated cells, each of which has its own separate legal identity and can hold assets and sue or be sued in its own name. This results in the assets and liabilities of any particular cell being legally ring-fenced from those of any other cell, offering greater security and protection than that provided by the protected cell company regime.
The 2010 Act and the Insurance (ICC) Regulations 2011 initially restrict the use of an incorporated cell company to the carrying on of insurance business, but provision is made for permitted uses to be extended to other types of business.
As noted above, the Foundations Act 2011 provides for the creation of foundations in the Isle of Man.
A foundation is an independent self-governing legal entity, but has the characteristics of both a trust and a company. The existence of a foundation is a public matter, but the foundation rules are not made public. The persons to benefit from a foundation are the beneficiaries or objects set out in the foundation instrument and rules. The foundation owns its own assets beneficially, whilst the beneficiaries have no interest in the assets. The foundation is managed by the council, which is subject to obligations similar to those imposed on directors, including the duty to keep the books and records, and to prepare the financial statements that are required in limited circumstances.
A foundation may be preferable to a trust if the client is more familiar with civil law jurisdictions in which the concept is better understood than trusts. It may also prove to be useful for holding assets where an orphan structure is required in commercial structuring.
The Purpose Trust Act 1996 made provision for the creation of trusts for a purpose or purposes, and established their validity. Trusts can now be established to fulfil a particular purpose rather than for the benefit of a particular beneficiary.
A purpose trust must satisfy certain statutory requirements, including the following:
A partnership is a relationship between "persons carrying on a business in common with a view to profit." In the Isle of Man, partnerships are governed by the Partnership Act 1909.
A limited partnership must have one or more general partners with unlimited liability, and one or more limited partners. A limited partner’s liability is restricted to the amount of capital contributed by them. Generally, a limited partner may not draw out their contribution during the continuance of the partnership, and may not take part in the day-to-day management of the partnership.
Partnerships have fiscal transparency and, as such, any income of a partnership is taxable on the partners in the proportions determined in the Partnership Agreement.
On establishing a limited partnership, consideration needs to be given as to whether it needs to be licensed as a collective investment scheme.
As noted in 1.1 Tax Regimes, the law of trusts in the Isle of Man derives almost entirely from English trust concepts and thus, unlike jurisdictions that do not follow the English common law tradition, legislation in this area targets anomalies that arise from time to time.
The Isle of Man recognises trusts governed by another jurisdiction’s laws, as the Recognition of Trusts Act 1988 extended the provisions of the Hague Convention on the Law Applicable to Trusts and on their Recognition to the Isle of Man.
The Trusts Act 1995 provides that the term of a trust selecting the law of the Isle of Man to govern the trust is valid, effective and conclusive, regardless of any other circumstances. The Trusts Act 1995 also permits express provision in trust instruments for changes in the governing law of the trust in particular circumstances, and provides that particular matters are to be determined by the courts of the Isle of Man where the trust is governed by the laws of the Isle of Man. It also excludes foreign law to the extent that it may render the trust void, unenforceable, otherwise defective or liable to be set aside due to prohibition of or failure to recognise the trust concept, or as a result of certain other heirship issues.
It is important to note that, unlike similar provisions in other jurisdictions, the Trusts Act 1995 does not apply to any testamentary trust or testamentary disposition unless valid under the law of the domicile of the testator at the time of death, nor does it apply to a trust or disposition of non-movable property, unless the trust or disposition is valid under the law of the jurisdiction where the non-movable property is situated.
The Trusts (Amendment) Act 2015 made three important amendments to Isle of Man trust law, as follows:
It is possible for companies, trusts and foundations to be structured in ways that permit changes to be made in the future. As noted above, the power to change the governing law of a trust can be contained within the trust instrument. Similarly, the power to change the terms of the trust deed can be contained within the trust instrument. A settlor also has freedom to reserve powers within the trust instrument.
The Isle of Man branch of the Society of Trust and Estate Practitioners (STEP) is actively consulting and lobbying the Isle of Man government to consider changes to Isle of Man trust law, including providing a clearer statutory footing for settlor reserved powers.
Please see 1 Tax on Isle of Man tax regimes.
Please see 3.2 Recognition of Trusts.
See 4.2 Succession Planning.
Trusts remain one of the more popular family business planning structures in the Isle of Man as a means of passing wealth and control from generation to generation, and as a means of asset protection. Trusts enable different generations to benefit from the assets of the trust under the control of the trustees as per the terms of the trust. For example, the trustee may own the shares in a company that in turn holds family property.
As the assets are under the control of the trustee, there is less risk of conflicts arising between family members, as trustees are required to act in the interests of the beneficiaries as a whole. Settlors can provide some influence on how the trustees exercise their discretion by making a letter of wishes, but the trustees retain ultimate control.
Discretionary trusts are often used, as trustees have a wide discretion as to the application of the assets of the trust, and the beneficiaries of a discretionary trust do not have a specific interest in the trust, only a hope of benefiting. However, it is possible for settlements into trusts to be set aside on the basis that they are void pursuant to the Fraudulent Assignments Act 1736, where the intention behind the settlement was to defeat a valid claim by a creditor.
Foundations are also used in a similar way to family trusts as part of succession planning. As noted in 3.1 Tax and Estate Planning, similar to a trust, a foundation is managed by a council for the benefit of the beneficiaries and/or objects in accordance with the foundation instrument and rules, and the beneficiaries have no interest in the assets. Foundations may also own companies, which, in turn, can hold property.
When a partial interest in an entity is transferred on death, the fair market value of the interest is adjusted to reflect a discount for lack of marketability and control. This is reflected in the estate accounts. This does not apply where there is a transfer of part during lifetime, because, as noted above, there is no capital gains or inheritance tax on the Isle of Man. There will, however, be a standard fee payable for registering the transfer of part of land during lifetime at the Deeds Registry or Land Registry.
Wealth disputes in the Isle of Man are being driven in particular by the tougher financial climate that exists following the global financial crisis in 2008. The Isle of Man courts are seeing more disputes relating to trusts and estates, and against the professionals involved, in order to recoup alleged losses that may have occurred. For example, there is an increase in claims for negligence or breach of trustee duties against professional trustees for losses that have occurred on investments. There are more claims by creditors against trustees to set aside trusts where it is argued, for example, that the trust was settled by the settlor with the intention of avoiding creditors, resulting in the settlement being void. Claims of constructive trusteeship are also being made, where it is argued that a third party has an interest in the trust assets and the settlor was not entitled to settle the assets into the trust.
It is envisaged that, going forward, the Isle of Man Courts will have a greater role in enforcing the ‘firewall’ provisions set out in the Trusts Act 1995 in the face of increased attempts by foreign courts to makes orders against assets held by Isle of Man trusts, particularly in matrimonial proceedings where spouses seek to include trust assets in divorce settlements.
In support of such claims, there is a rise in claims for freezing injunctions and disclosure orders against professional trustees and companies, where third parties seek to attack trust and company assets on the basis of arguments that such assets should be available for the enforcement of judgments against the underlying ‘beneficial owners’ of the assets.
For the same reason, the courts are dealing with disputes regarding estates, including claims under the Inheritance (Provision for Family and Dependants) Act 1982 where a person is not satisfied with the provision made for them under a will or on intestacy. In addition, there are more challenges to the manner in which estates are administered, including where a family member may be executor under a will and at the same time have a claim against the estate, for example.
A knock-on effect of this is that professional trustees and executors have a greater need to seek the court’s protection by way of applications under Sections 55 and 61 of the Trustee Act 1961 for the court’s advice and direction, or by seeking additional powers to enable them to effectively administer the trust or estate. Provided that the trustees act reasonably in making the application and provide full disclosure of the relevant issues to the court, the trustees are protected against subsequent challenges.
The court has a wide range of powers in respect of such disputes, and the remedy that is provided depends on the nature of the claim or application. Where negligence claims or claims for breach of trustee duties are brought, the court may grant judgment against the professional for damages, assuming that there was no effective exclusion of liability in place. The court has wide powers to control and oversee the administration of both trust and estate disputes, including ordering the trustee to account for its actions or to take specific steps, and/or ordering the dismissal and replacement of the trustee. In any case, the wrongdoer can be ordered to pay the costs of the claimant in respect of the dispute. In cases where trustees and executors have acted properly in applying to court for directions and/or any dispute is between third parties, the court is likely to permit the trustees and executors to recover their costs from the trust assets.
The use of corporate fiduciaries (corporate and trust service providers) is prevalent in the Isle of Man. Corporate fiduciaries are required to be licensed by the Isle of Man’s regulator, the Financial Services Authority (IOMFSA), subject to specific exemptions. The Financial Services Act 2008 (FSA 2008) and the Financial Services Rule Book 2016 are the statutory basis for regulating fiduciaries.
The FSA 2008 provides for the licensing, regulation and supervision of persons who carry out regulated activities in relation to trusts, companies, foundations, etc. Such activities include acting as a trustee, director, council member, protector, enforcer or trust corporation, or providing administration services, which is also subject to specific exemptions.
A corporate fiduciary owes the company a duty to act with the care, skill and diligence that a reasonable person would exercise, but may be held to a higher standard of care dependent on their experience. Specifically, duties owed by trustees are set out under Section 1 of the Trustee Act 2001 (TA 2001), which states that a trustee must exercise such care and skill as is reasonable in the circumstances, having regard in particular to any special knowledge or experience that the fiduciary has or holds himself as having, and to any special knowledge or experience that it is reasonable to expect of a person acting in the course of a specific business or profession. Failure to properly discharge the duties and responsibilities of a corporate fiduciary is likely to result in civil and/or criminal penalty.
Issues could be raised regarding a beneficiary or donor of a trust, foundation or similar entity also serving as a fiduciary in relation to that entity, concerning potential conflicts of interest between their fiduciary duties and their personal interests.
Isle of Man case law on the topic of piercing the corporate veil has treated English case law as persuasive. A trust does not have a separate legal personality like a company. A trustee must act in accordance with the trust deed. If the facts of a particular case show that a trustee has abused his/her/its power as trustee, the veneer of the trust can be pierced and the trustee can be held personally liable for the debts of the trust.
Unlike trusts, foundations have separate legal personality and are therefore capable of holding assets, suing and being sued. A foundation can transact in its own name but it has no owner, so the founder cannot be liable for its debts.
In carrying out their functions, members of the council must act honestly and in good faith, and must exercise the standard of care of a reasonably prudent person; otherwise, similarly to a director/trustee, council members can be found personally liable in the event of wrongdoing.
Fiduciaries can be held personally liable if they are found to have fallen below the requisite standard of care that encourages fiduciaries to invest assets prudently. Provisions under the TA 2001 impose a duty of care upon trustees when exercising their investment powers, and state when such duty of care applies. The TA 2001 further provides for general powers of investment, allowing trustees to make any kind of investment as if they themselves were absolutely entitled to the assets of the trust, subject to the standard investment criteria (as set out below). Trustees are required to obtain and consider proper advice in relation to trust investments.
Exculpatory and/or exoneration clauses can be included in the trust document, exempting trustees from liability for actions that cause loss or damage to the trust or its beneficiaries resulting from a trustee’s own negligence, but cannot restrict liability for loss caused by a trustee’s own fraud or dishonesty.
By virtue of the Trustee Act 1961, a trustee may, by power of attorney, delegate the execution or exercise of all or any of the trust's powers and discretions vested in the trustee, either alone or jointly to a third party. However, the trustee remains liable for the acts or defaults of the third party whilst acting under the power of attorney.
The Isle of Man court may relieve a trustee from personal liability for any breach of trust if he/she/it was found to have acted honestly and reasonably, and ought to be fairly excused for the breach.
The tax consequences of an individual in the Isle of Man acting as a fiduciary or being a beneficiary of a foreign trust or foundation will depend upon the facts in each case. Please see the comments on Isle of Man tax contained in 1.1 Tax Regimes.
The standard applied under Isle of Man law is found within Section 4 of the TA 2001, which provides that a trustee must have regard to the ‘standard investment criteria’, which are the suitability to the trust of investments, and the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust. In selecting investments, a trustee has a duty to consider that the trust is making an investment for the benefit of other people (for whom he is morally obliged to provide). A trustee must carefully balance the risk of investments against not using their powers to invest fully.
A foundation cannot directly engage in commercial trading that is not incidental to its objects (although it is possible to get round this by holding a trading subsidiary). There are no specific restrictions under local legislation that would prevent a trust from holding and/or running a business. Any restrictions would be dependent on the trust deed in conjunction with the purpose of the trust.
Whilst any individual from a European Economic Area (EEA) nation has the right to reside in the Isle of Man without requiring entry clearance, the Isle of Man has a strict work permit system, meaning any person wishing to take up employment within the Isle of Man must apply, unless they are deemed an 'Isle of Man Worker' by virtue of their nationality or the nationality of certain of their relatives. There are certain exemptions to the work permit requirements for employment in specific sectors, such as accountancy and e-business, and for certain healthcare positions.
Individuals from countries outside the EEA will require a visa for entry clearance to the Isle of Man, which can be obtained on a number of grounds. If a visa is obtained, a work permit is not usually required, as most visa categories are based on the applicant having an offer of employment and being sponsored by the employer.
The points-based system (PBS) for visas used in the UK is largely mirrored by Isle of Man immigration law, and there are particular categories under Tier 1 visas for investors and entrepreneurs. Subject to certain exceptions, Tier 1 (Entrepreneur) visas are available to those who meet all of the common immigration requirements under the PBS but who also have access to significant funding (currently GBP200,000 independently, or GBP50,000 from specific regulated sources) with which they wish to establish, join or take over a business on the Isle of Man; the entrepreneur must be actively involved in the business. Tier 1 (Investor) visas are available to those who have no less than GBP2 million under their control and disposable to invest in the Isle of Man. Applicants for the investor visa are not obliged to meet the English language requirements, but must deposit funds in an Isle of Man bank account. Both of these visas are available for up to three years and four months initially, with the prospect to extend after that time.
It is not possible to obtain Isle of Man, or 'Manx', nationality. All persons are British citizens and holders of British passports. The closest an individual can get would be a grant of indefinite leave to remain, which can be applied for after five years of continuous residence on the Isle of Man in compliance with the visa provisions above.
In respect of residency, the question of tax residency will usually be of the greatest concern to individuals, as it dictates how and where they are taxed. There is no statutory definition of 'residence' in Isle of Man tax legislation. The test used is taken from the case of Levene v IRC (1928), where it was held that 'ordinary residence' will mean generally or usually resident with a “view or intent of establishing residence”, as opposed to a mere presence on the Isle of Man for a temporary purpose.
There are some general rules to indicate when a person will be considered tax resident in the Isle of Man. Individuals residing in the Isle of Man for six months or more during a tax year will be treated as resident for the whole tax year. Individuals who spend more than 90 days per year on average in the Isle of Man over a four-year period will be taxable as a resident from the start of the fifth year. If there is a clear intention to spend 90 days or more in the Isle of Man in each tax year over four years plus then the individual will be resident from the first year. Days of arrival and departure are ignored for calculation purposes. If an individual is absent for one complete tax year, they will be non-resident for that year. If an individual is absent for two years, they will be non-resident permanently.
Further information in respect of tax residency in the Isle of Man can be obtained from the Isle of Man Income Tax Division.
As above, there is no concept of 'Manx' citizenship; however, to obtain British citizenship it is necessary to fall within one of the criteria, which mainly require at least three or five years’ residence. As there are a number of pathways to obtain citizenship, advice should be obtained on the specific circumstances of each case.
There are no specific planning mechanisms for minors or adults with disabilities in the Isle of Man, but there are a number of structures that can be put in place to provide for such persons. A trust can be set up with a letter of wishes as to the application of trust funds, or a foundation can be established with the specific purpose of benefitting a disabled person or minor.
In respect of a monetary judgment granted in favour of a minor or a disabled person (for example, in cases of personal injury or clinical negligence resulting in an award of damages to a minor or disabled person), the court has the power to give directions as to how the money shall be dealt with. Any settlement of such claims must also be approved by the court. The court may also appoint the Attorney General to be a guardian of a minor’s estate in certain circumstances until they reach the age of 18.
A person with parental responsibility for a child may appoint a guardian in respect of that child in case of their death whilst the child is still a minor, by way of a will or a document that complies with the formal requirements for the execution of a will. Otherwise, an application can be made to the Isle of Man High Court for the appointment of a guardian for a child who has no person with parental responsibility for them.
A protector may be appointed in respect of a trust, who may be given powers such as appointing and removing trustees. This position provides an independent third party to the settlor, which maintains the settlor’s distance from the trust. However, caution must be exercised not to give too many powers to a protector, or they may become a quasi-trustee for tax purposes. The appointment of a protector does not require court approval or supervision.
To prepare for a future loss of mental capacity, a person can execute an enduring power of attorney (EPA), which continues to be effective once mental capacity is lost. Upon the loss of mental capacity, the EPA must be registered at the General Registry on the Isle of Man by the appointed attorney(s). An EPA can only be put in place over a person’s property and affairs.
If an EPA is not put in place and a person wishes to take over management of the affairs of someone who has lost mental capacity, an application must be made to the Isle of Man High Court for a receivership order. This will generally only be granted in respect of one receiver and the Court will not usually appoint a receiver who is resident outside the Isle of Man.
Globally, increased numbers of people are living longer, and the Isle of Man has made some positive changes in order to help individuals and families prepare financially for the challenges associated with this.
The Isle of Man government offers financial, medical and social support, including increasing older persons’ disposable income through access to a range of social security benefits, including, but not limited to, a retirement pension and Christmas and winter bonuses.
State Retirement Pension is currently paid to Isle of Man residents upon reaching the age of 65-68 depending on their year of birth. Following on from the introduction of the Retirement Benefits Schemes Act 2000, the Isle of Man has become a key centre for the administration of international and domestic pension schemes.
There are also other age-related entitlements designed to benefit the elderly population, such as assisting them with access to public transport, free prescriptions and dental treatment (subject to qualifying conditions).
Children born out of wedlock and adopted children are treated the same as natural legitimate children with regards to their right to inherit or to be included in a class of beneficiaries, as per the Legitimacy Act 1985 and the Adoption Act 1984.
In accordance with the Children and Young Persons Act 2001, it is an offence for an individual or body to initiate, take part or negotiate in making a surrogacy arrangement on a commercial basis. If found guilty of the above act, a person or body may be liable to six months' custodial sentence and/or a fine of up to £5,000.
No surrogacy arrangement is enforceable by or against any of the persons making it. In addition, it is an offence for an individual or a publishing body to advertise any surrogacy and if found guilty, it may be liable for a fine of up to £5,000.
Same-sex marriage on the Isle of Man became legal on 22 July 2016 by virtue of the Marriage and Civil Partnership (Amendment) Act 2016. Domestic partners are not recognised in Isle of Man law. Cohabiting unmarried couples do not acquire the same rights as couples who are married or have entered into a civil partnership.
The laws in the Isle of Man encourage charitable giving in various ways. Charities in the Isle of Man are exempt from income tax and, if registered as a company, will fall under the zero rate income tax in any event. Charitable donors who are resident in the Isle of Man can obtain tax relief in respect of donations made to registered charities in the Isle of Man and the EU.
The Charities (Exemptions) Regulations were introduced in 2008 to attract privately funded philanthropic arrangements. The new regulations are attractive to people who require an adequate but not excessive level of external regulation, but who also like the charity to have the credibility and security that comes with external regulation.
Structures commonly used in the Isle of Man for charitable planning are unincorporated associations, trusts and limited companies.
Unincorporated associations are the most common type of organisation for small to medium charities. The charity will be run by a committee in accordance with the terms of its constitution, which sets out the objects of the charity and how it is to be run.
A charitable trust is a type of trust set up for a specific purpose or purposes that the law sees as ‘charitable’, such as relief of poverty, the advancement of education, or the advancement of religion. One advantage of establishing a charitable trust on the Isle of Man is that they are fully exempt from local taxes. As a trust is not a separate legal entity in its own right, and legal title to any assets will be held in the name of the trustees, this structure is often used for private or family-orientated trusts.
A limited company may also be utilised for charitable planning. As noted above, companies in the Isle of Man fall under the zero rate income tax bracket, regardless of the fact that charities are already exempt. A limited company may be appropriate for a larger charity that will employ staff, own property and enter into commercial contracts.