CRAIG Brown, director of IOMA Solutions, has given his thoughts on the emergency UK Budget which was announced yesterday.
Mr Brown said: "On Tuesday 22 June, George Osborne presented the first budget of the UK’s newly elected coalition government against a backdrop of economic difficulty and uncertainty.
"As has become fashionable in recent years, much of the content of the budget had been pre-announced in the press, therefore there were few major surprises; nonetheless, the substance of the budget merits further review as the measures will have repercussions for Isle of Man businesses and residents.
"The biggest headline is probably the increase in the VAT rate to 20 per cent from January 4 2011, which still leaves the UK and Isle of Man with a competitive VAT system and a rate below the European average of 20.3 per cent.
"For the average household this is not good news, as it represents an annual cost of around £400. However, under the common purse arrangement with the UK, this rate rise could contribute an additional £25m each year to the Isle of Man Treasury.
"Hopefully this should make any increase in income tax rates in the immediate future less likely.
"It had been widely anticipated that the budget would reverse the planned one per cent increase in National Insurance rates from April 2011. Instead, the Chancellor has chosen to leave the increase in place, but to ease the burden on employers by increasing the threshold above which NI contributions are payable by employers.
"Since this reduces the wage burden on employers in a time of significant cost pressures, we would assume that a similar measure might be adopted by the Treasury for Isle of Man employers.
"There was no surprise when an increase in capital gains tax rates was announced, however the immediate implementation of the change and the fact that it was limited to a rate of 28 per cent for higher and additional rate taxpayers had not been expected.
"Had the rates been aligned with income tax rates, there was an expectation of a flood of tax planning transactions by UK residents in order to crystallise capital gains at the lower rate.
"Limiting the new rate to 28 per cent is a very astute move and will result in far fewer capital transactions taking place than had been anticipated, although it would be no surprise if this was simply the first step in a staged move towards aligning capital gains and income tax rates, but in such a way as to make tax planning less desirable.
"Other announcements of interest to the Isle of Man include the planned review of the tax status of UK non-domiciled individuals and the possible introduction of a general anti avoidance rule. Both of these topics may have an adverse impact on the international financials services industry in the Isle of Man, but until the results of the reviews are known we cannot say this with any degree of certainty.
"Finally, the proposed introduction of a restriction on tax relief for pension contributions could be a boost to the Island’s pension industry, as higher earners in the UK consider the use of an Isle of Man based pension as part of their retirement planning, something which might previously have had adverse tax consequences for their contributions.
"In summary, the budget was certainly as tough as anticipated, but contained little which might be of immediate concern for the Isle of Man. The Chancellor’s projections of the UK’s economic status appear to be optimistic, but are at least based on independent economic data.
"We must hope that they are proved to be correct, as a strengthening of the UK economy ought to provide a significant boost to the Isle of Man."
The IOMA group is one of the Isle of Man’s oldest providers of insurance and independent financial services, working with private clients, IFAs and professional firms to build wealth.
