Up to five tax cappers may have left the island since measures were introduced to prevent potential abuse of the system, the Manx Independent has learned.
Chief Minister Allan Bell admitted: ‘It may have rebounded on us.’
The House of Keys this week voted to give a second reading to changes to the Income Tax Bill that will amend a new rule brought in only last year that obliged tax cappers to sign up to the £120,000 cap for five years.
That five-year provision was designed to give certainty to Treasury revenues. But in the Keys Treasury Minister Eddie Teare admitted there was another reason – to prevent the potential for abuse.
Under the planned amendments, individuals can effectively opt out of the tax cap and choose to have their tax liability assessed in the normal way.
Mr Teare told the Keys that this was about recognising people’s circumstances can change - for instance they may have sold their business.
But iomtoday has been told two tax cappers left when the tax cap election was introduced and the island had lost another three ‘high net worth’ residents in the last few weeks, with the loss of nearly £5m in revenue.
Mr Teare, however, said he was not aware of any tax cappers having left.
Explaining the reasons for the introduction of the tax cap election in last year’s Budget, he said: ‘We didn’t recognise that the scheme as originally drafted had the potential to be abused.
‘We thought it only right and fair that we should deal with that. It was brought to my attention by a taxcapper who thought it only right and fair that everybody not only abide by the law but the spirit of the law.’
He said there was evidence the previous system was open to abuse because a person could declare himself a taxcapper in one year, take a big dividend from the company and then have no tax liability at all in subsequent years. He described this as ‘dipping in and dipping out’.
He insisted the new clause allowing tax cappers to be assessed normally would only be used in ‘extenuating’ circumstances and they would still have to pay the tax due.
And he said he had been assured by the assessor that this measure will not lead to abuse.
The Chief Minister said the tax cap policy had brought significant economic benefits, having created several hundred jobs and encouraged millions of pounds of investment. ‘The whole intention is to encourage young entrepreneurs. We’ve got to be flexible sometimes as well.’
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What is a ‘tax capper’?
Since 2006, the Isle of Man has allowed the super-rich to pay a maximum amount of income tax a year. So they pay a fixed amount and pay no more in income tax, making their accountants’ live much simpler. It’s currently set at £120,000 a year. It was introduced to attract wealthy entrepreneurs to the island. But last year it was decided to make tax cappers sign up to the scheme for five years in a row.