Offshore Trusts Report: Isle of Man
Uses, Clients and Tax Treatment
Trust management, particularly for wealthy UK individuals,
has been a traditional business for the Isle of Man. Successive
tightenings of UK anti-avoidance legislation have reduced the possibilities
for UK citizens, but trust work continues to be significant and
as in a number of other jurisdictions, many Collective Investment
Funds are based on Trusts. The recent introduction of the purpose
trust will probably lead to an increase in corporate trust work.
Income tax is the only form of direct taxation in
the Isle of Man. There are no capital gains taxes, gift taxes or
A trust managed and controlled within
the Isle of Man, with non-resident beneficiaries, and all income
arising from sources outside the Isle of Man, will not give rise
to income tax against either the trustees or the beneficiaries.
There is no stamp duty. By concession, bank interest and some dividends
arising in the Isle of Man are exempt from tax, but other local
income will be subject to non-resident tax.
If a primary or supplementary trust deed has a clause
which specifically excludes any Isle of Man resident from becoming
a beneficiary, but that trust receives income from taxable sources
in the Island (e.g. rental income from a property in the Isle of
Man or profits from a business carried on in the Isle of Man) there
is a liability to Isle of Man income tax. There is an obligation
on the trustees to submit a completed trust questionnaire and a
copy of the relevant trust accounts, showing worldwide income received
and expenses incurred. These should be received by the Assessor
by October 6 in the year following the year of assessment in which
the income was received. The Assessor will notify the trustees of
what is required of them on an ongoing basis. The tax rate applicable
to trusts for the 2009/10 year of assessment was 18%.
In February, 2005, however, a leading UK tax expert
warned that many trusts domiciled in the Isle of Man could fall
foul of new measures designed to tighten up the tax rules surrounding
pre-owned assets for UK taxpayers. Nick Williamson, managing director
of fiduciary services company Walbrook Group, revealed that as many
as one-fifth of trusts in the Isle of Man with UK beneficiaries
could be affected by the new rules, which came into effect in April,
In effort to clamp down on tax planning schemes that
seek to mitigate the effects of inheritance tax, the UK government
introduced a new system to subject benefits enjoyed from previously-owned
assets now held in trust to income tax. The new rules not only affect
property but also investments and other assets.
Mr Williamson explained at the time that: "The change
may well affect British expats if they are beneficiaries from trusts
set up by UK taxpayers. The new rules apply to any assets transferred
into trust since March 1986, which would affect a lot of trusts."
He warned that some trusts could need "drastic restructuring"
before the introduction of the amended rules, to combat the effect
of new taxation.