Heading off to the 'crown dependency of the Isle of Man could give your bank balance a substantial boost.
Many of us are keen to find legitimate ways to reduce the amount of tax that we pay.
It may be that you save within an ISA so that the taxman can’t touch the interest you earn on your cash, or you may already be looking at ways to reduce any eventual inheritance tax due on your estate.
Some taxes are not that easy to sidestep though, with national insurance a prime example.
However, there is another option if you want to save a couple of thousand pounds on your National Insurance. But you'd have to relocate to the Isle of Man.
The National Insurance ‘holiday’
Last week the Island’s Government announced plans to introduce a National Insurance ‘holiday’ scheme, which will come into effect this year.
If you take advantage then you can apply for a refund on your national insurance contributions for your first year of residency on the Isle of Man, up to a maximum of £4,000.
It’s open to anybody who takes up a full residence on the island, alongside permanent employment from 6th April this year and enjoys a gross annual salary of £21,000 or more.
There is an exemption in place for students from the Island who return after their studies, whether that’s having completed a degree, higher national diploma or postgraduate course.
They will also qualify for the national insurance refund, but there is no minimum salary requirement in place.
The tax benefits don’t stop there
It’s worth noting that there are further tax benefits that come with life on the Isle of Man compared to the UK (in fact, there are tax differences across the UK).
For example, the Personal Allowance – the amount you can earn each year free of income tax – is significantly higher on the Isle of Man. On mainland Britain, we can currently earn £11,850, which will be rising to £12,500 in April.
However, on the Isle of Man the Personal Allowance is currently £13,250 and will increase to £14,000 for the 2019/20 tax year.
The Income Tax rates are lower too, at 10% Basic Rate and 20% Higher Rate, while residents of the island do not pay any Capital Gains Tax or Inheritance Tax.
Is the Isle of Man part of the UK?
The Isle of Man is what’s classed as a ‘crown dependency’. As such it is entirely self-governing, and while it isn’t part of the UK, the ‘Crown’ is ultimately responsible for ensuring the residents are well governed and defended.
The British Nationalist Act of 1981 confers British citizenship on anyone with a close connection with the UK, the Channel Islands or the Isle of Man. It’s also worth noting there is no immigration control between the UK and the island.
Why the Isle of Man needs this National Insurance holiday
The thinking behind the National Insurance holiday is really pretty simple. There aren’t enough people of working age on the island to take on all of the jobs that need doing.
By introducing this sort of financial boost, the hope is that it will attract more workers over.
As Laurence Skelly, the Minister for Enterprise on the island, put it: “We have more jobs than people to fill them.”
It’s part of the Government’s Locate Isle of Man scheme, which aims to highlight why the island is a good place to live and work, with the aim of boosting the number of economically active residents over the next couple of years.
Similar tax boosts
The Isle of Man isn’t the first to introduce some form of tax incentive in order to encourage people to relocate.
In Portugal for example, there is the non-habitual residency programme, which means that you can enjoy a flat rate of 20% Income Tax, which is a sharp drop from the usual rates which can go all the way up to 48%.
This is open to people that work in certain professions that have been deemed high value by the Government, such as science.
Interestingly, the scheme means that income from a foreign source is exempt from Portuguese taxation for a decade, which makes it particularly attractive to expats who will be enjoying a pension income or perhaps an income from a property portfolio, as this will then be tax-free for 10 years.
However, the Government has said it is looking to review this.
There are also proposals in Italy which would see older people moving into some of its southern villages benefit from a decade without paying any tax on their incomes.
No need to move
Obviously, moving to slightly reduce your tax bill is a drastic step.
A far more logical approach would be to run through your finances to find the areas where you're paying more tax than you should be.
A good place to start is this comprehensive guide to reducing your tax bill.