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 inheritance taxes.
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, 2005.
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.
Isle of Man News
IoM Consults On Funds Sector Rules Monday 22/5/2017The Isle of Man Financial Services Authority, which supervises the island's financial services sector, is seeking feedback on draft guidance dealing with the governance of collective investment schemes.