KPMG’s GREG JONES looks at the small print in the 2016 Isle of Man Budget
You could have forgiven, and may have expected, some electioneering cant in Eddie Teare’s 2016 Manx Budget – the last of the present administration before the island goes to the polls in September.
But not a bit of it. This was a budget which, for the most part – with one notable exception, the island’s finance minister – acknowledged the harsh reality of the present economic environment, and this was particularly reflected in a number of the tax measures announced.
First, the minister admitted that the Government’s lofty aspiration to abolish the basic 10 per cent income tax band could not be met – for the moment, at least.
The island’s income tax receipts just do not permit this simplifying measure to be taken in a way which leaves most taxpayers no worse off.
As a halfway house, Mr Teare announced that the 10 per cent band will be decreased by £2,000, matched by a corresponding £1,000 increase in the individual personal allowance: for a 20 per cent taxpayer, therefore, the effect is neutral. And the 10 per cent band lives to fight another day.
The second reality check was the proposed doubling of the tax-free relocation allowance to £20,000.
In other words, you can offer a valuable employee a relocation package of up to £20,000 to move to the Isle of Man, without income tax having to be paid.
This, to my mind, is a stark reminder of the skills shortage which the island is now suffering in certain industry sectors, and it is vital that these shortages are addressed if the island is to grow its way into prosperity.
Tax-free relocation allowances in other jurisdictions vary enormously depending on the local economy and ease of attracting an inbound workforce: in Jersey it is £7,500, whereas in Gibraltar it is unrestricted. Read into that what you will!
Thirdly, the announcement of a five-year tax holiday for commercial property developments which generate new employment would appear to be some sort of response by the government to the stinging criticism which it attracted from the property sector when tax rates on property income were doubled to 20 per cent last year.
However, the obvious risk is that this incentive will lead in the short term to a glut of empty office etc. accommodation, thereby compounding the general perception of economic stagnation.
Moreover, the tax holiday is only at company level: dividends paid to local shareholders will still be taxable in the usual way.
Fourthly, Mr Teare’s budget speech acknowledged that pension reform is urgently required across the board.
Public sector, private sector, state pensions, occupational pensions – an unholy mess has evolved, which requires radical change.
Mr Teare was able to announce some of these: a new Manx state pension, for example, and following the UK’s position to allow retirees unfettered access to their pension pots last year (remember pension minister Steve Webb’s now infamous words, ‘anyone can go and buy a Lamborghini’?), it looks as if the Isle of Man may be heading in the same direction.
Not just yet, however: Mr Teare would only announce an increase in the ‘triviality’ threshold to £50,000, coupled with a reduction to 55 of the age at which this becomes permissible – when you factor in the 30 per cent tax-free lump sum, this means that a newly retired 55-year-old with a pension pot of, say, £70,000, could take the whole lot in one go, paying maximum income tax of around £10,000.
Maybe not such good news for pension providers, but a welcome move for local shops and other service providers. If only we had a local Lamborghini dealer …
The elephant in the room, of course, was as always the public sector pension scheme; unfortunately, this problem is still languishing in the ‘too hard to deal with’ drawer and will have to be addressed by a future Government.
Overall, a budget speech refreshingly long on honesty and short on promises.
Let us hope the dose of reality is just what the island needs to keep us in business.