When looking at the recent UK budget it can sometimes be tempting to be distracted by the politics, especially when clear ideological"choices" have been made. Maintaining perspective is important, indeed being based on the Isle of Man we look towards what is happening in theUK and focus on how the budget changes may affect clients with UK interests including those who have relocated to the Island and Isle of Man companies and trusts holding UK assets.

 

A number of proposals were touted prior to the actual budget, such as an exit or "settling up"charge for those leaving the UK to say relocate to the island, and possibly the introduction of a wealth tax. Neither measure made it into the budget although there are measures that will affect clients who have relocated and Isle of Man based structures.

 

The increase in income tax by 2% on rental, dividends and interest income will not be well received by UK residents who have saved and invested to build up their wealth over the years.For non-residents with UK source unearned income, there will be an increase of the basic rate of withholding tax by 2% at source emphasising the need to ensure that they make the relevant claims under a double tax treaty to reduce the rate of tax withheld if possible.

 

Long-standing excluded property trusts may benefit from a new cap on their ten-year and exit charges.

 

The imposition of a mansion tax of £2500-£7500 per year for wealthy individuals is a further blow to a group that may already feel unwelcome in the UK and may cause many to bring forward sales and consider leaving the country for locations such as theIsland.

 

A niche but important budget measure was the introduction of changes to the temporary non- resident rules (TNR) looking to prevent individuals avoiding income Tax and CGT whilst living abroad for short periods. Non-UK residents who have recently left the UK will need to carefully monitor their situation and may need to consider a permanent move to qualify as a long-term non-resident and will need to seek advice on their options.

 

Despite rumours there were no introduction of a lifetime gift limit, or an extension of the seven-year rule (where gifts remain within the scope of IHT) which are still important options for residents and non-residents with UK family.

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 "VARIOUS MEASURES CONTINUE THE UK'S MOVE TOWARDS TIGHTER ALIGNMENT BETWEEN UK-RESIDENT TAXPAYERS AND THOSE USING OFFSHORE STRUCTURES. THESE MEASURES, WHILE LESS VISIBLE, UNDERLINE THE IMPORTANCE OF KEEPING EXISTING IOM-UK ARRANGEMENTS UNDER REGULAR REVIEW."

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The Budget also extends the UK's inheritance tax "look-through" rules to agricultural property held through offshore structures, which will affect any Isle of Man entities owning UK farms or estates. Future revisions to the non-resident capital gains rules and the "property-rich" threshold may alter the scope of UK CGT on share disposals. In addition, the higher trust rate for UK property and savings income - set to rise to 47% - will increase the UK tax cost for certain trusts administered in the Isle of Man. Finally, various measures continue the UK's move towards tighter alignment between UK-resident tax payers and those using offshore structures. These measures, while less visible, underline the importance of keeping existing IOM-UK arrangements under regular review.

 

Whilst many feared, and touted measures, did not make it into the budget, with the rest of the parliament ahead many will fear that these are indication of the direction of travel and it is only a matter of time before things get worse. Perceptions are critical as they influence behaviour such as whether to invest further in theUK or indeed whether to consider leaving taking appropriate advice on the currently available routes.

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You can read the full article with Portfolio here: https://online.fliphtml5.com/KUP1/zzqm/#p=24