" Darling's Isle Of Man Must Be On Some Other Planet "

[Gladys]

I don't think the UK care whether the money is put offshore so long as it is declared and tax paid on it.

 

So what then is the point of shipping your money offshore if you are going to pay UK tax on it?

 

There must be a reason to put your money in the IOM. If it's not to avoid tax in your home country, then what is it?

 

S

We keep on coming back to the need to differentiate between legitimate tax avoidance or planning (something that a 19th century court case established) and illegal evasion. Placing funds here by an indiviudal and not declaring it to, say, the UK authorities is plainly evasion. On the other hand, for example, if you are working overseas you wouldn't necessarily want to pay UK tax on your earnings, particularly if you are not living there. That would be a legitimate reason to put your earnings in the IOM keeping it offshore to the UK. There are also reasons why people would want to keep their money safe from 'unfavourable' regimes.

 

It was interesting that when the EU savings directive came in where the choice was either pay a withholding tax on interests earned on money here or we will notify the tax authority in the courntry of residence, very few bank deposits were consequently lost, making you think that the main reason for those deposits was not tax.

[Skeddan]

So what then is the point of shipping your money offshore if you are going to pay UK tax on it?

 

There must be a reason to put your money in the IOM. If it's not to avoid tax in your home country, then what is it?

A UK resident who puts savings in IoM can earn interest on this without having to pay tax on it - at least until they repatriate the money to the UK. AFAIK they will then pay income tax on interest earned at that time rather than at higher rate income tax which might otherwise be charged. This means for retirement savings and the like, this can be attractive, especially if IoM schemes offer a higher rate of interest. It is not tax evasion, but rather tax deferral or 'tax planning' - all tax is paid, only by structuring in this way, there is a tax benefit. Nothing illegal, no evasion, or anything of the sort.

 

As Boredom notes, interest rates are now so low that the main concern is security, especially after recent events. There is little to be gained in tax deferral when the low interest rates mean this tax is going to be minimal anyway - even with compound interest on money which would otherwise have been paid out in tax. The combination of extremely low interest rates and very low investor confidence in IoM is likely to be highly damaging.

[VikingRaider]

Don't think so ... a UK resident has to declare all worldly interest received and pay tax in the UK on it. The only exception would be if said individual is classed as non-dom in the UK but that's a whole different ball game.

[John]

Sadly I leave all the money and tax evasion to my Accountant Girl Friend.

 

But the Isalnd has survived in recent times by being a "Tax Haven" they can try and re-brand or claim that this is not what we are, etc etc.

 

But ask any person anywhere else in the World or any other planet what we are and I am pretty confident you will hear the term.

 

"Tax Haven"

[Sebrof]

Don't think so ... a UK resident has to declare all worldly interest received and pay tax in the UK on it. The only exception would be if said individual is classed as non-dom in the UK but that's a whole different ball game.

 

 

Ssh. Don't argue with Skeddan. He is the Sir Francis Bacon of the modern age.

 

There does seem to be a great deal of confusion here. Skeddan says that a UK resident will not have to pay tax on interest earned in the IOM until it is remitted. He then says that because some tax will be paid eventually, this is all right.

 

What he glosses over (assuming he is right about the tax position) is that there will be a delay in the receipt of tax, and that less tax will be paid ("rather than at higher rate income tax"). This is tax avoidance, pure and simple. Legal, perhaps, but resulting in a loss of tax to the UK.

 

If (heaven forfend) he is wrong about the tax posiition - and I fear he may be, then what is the attraction of a UK resident putting his money here?

 

I am aware, of course, of the issue of UK ex-pats being unable to open a UK bank account, but I don't imagine they are the main users of the Manx financial system. How many expats, after all, leave the UK without having a bank account? One in a thousand? And how many can't use a relative's address?

 

And generally, interest rates seem to be better in the UK than in the IOM. Why should it be otherwise?

 

So I am left feeling that the only significant reason for putting money in the IOM is to avoid tax (legally or otherwise). And that makes it a tax haven.

 

If I am wrong, please show me where. Unfortunately, nobody here seems to have a convincing answer, and if the eminent members of this forum don't understand the issue, what hope is there for the ordinary Joe? Or the ordinary Alistair or Barack?

 

S

 

PS: Viking, you are incorrect, I think, about needing to be non-dom, being non-res is sufficient.

 

 

Edited to add: (legally or otherwise)

[La_Dolce_Vita]

I don't think the UK care whether the money is put offshore so long as it is declared and tax paid on it.

 

So what then is the point of shipping your money offshore if you are going to pay UK tax on it?

 

There must be a reason to put your money in the IOM. If it's not to avoid tax in your home country, then what is it?

 

S

 

Is this not the issue though? Companies and people having the ability to avoid tax that they would ordinarily pay? For those who believe that people and capital should be taxed in order to contribute to society by paying for the state, why should some have the ability to shirk their responsibilities?

[Frances]

I'm no tax lawyer but seem to recall from days when I had to fill in UK tax forms that they wanted to tax all interest paid - not merely that repatriated - maybe I missed a trick here?

 

Edited to add comment re differential tax rates between earned income + dividends + mechanism to avoid paying NI on part of your income stream - I was once suprised to hear a NHS physiotherapist say she was paid via IoM till I realised she was probably self employed and funnelling thru a IoM reg 'pseudo' company.

[Skeddan]

This might help explain how a UK Resident can use IoM for tax deferral / tax avoidance:

 

http://www.wellingtonshield.com/artman/pdf...PITALREFUGE.PDF

 

Of course this uses some structuring and legal financial and tax engineering - without that - or other similar engineering, the UK resident would not be able to have advantage of tax deferral just by using an offshore account. That particular document is quite old (2002) but gives some indication of the basics. As I understand it there are a number of ways that offshore funds can be structured for tax deferral. It also makes point that on redemption the investor might no longer be a UK domiciled ordinary resident - so could avoid tax as well as defer it.

 

This also explains a bit:

 

What are the tax benefits of offshore investments?

 

For a UK domiciled ordinarily resident, there are tax deferral benefits of investing offshore. If you put money in an ordinary offshore bank account, you have to pay tax on interest every year through your tax return. But some offshore banks and building societies offer deferral accounts in which tax is not paid on interest until the money is brought back to the UK.

 

Tax deferral is also offered by many offshore funds. There are many different types of investment vehicles available offshore such as offshore bonds that allow an investor to defer tax within the policy until benefits are taken, rather than suffering a basic rate tax liability within the underlying funds.

 

Investments such as offshore redemption policies, personalised policies, offshore unit trusts and OEICs, SICAVs can all make the choice of which investment type complex. You may also wish to have access to investments or savings that are denominated in another currency.

 

http://www.unbiased.co.uk/find-an-ifa/fact...riate-finances/

 

I'm no tax lawyer or finance specialist either - just going by the little I've read about this.

 

Sebrof - I don't mean to gloss over this resulting in delay in paying tax, or paying less tax - as I said, there are tax advantages if structured for tax deferral - this is one of the key things that makes offshore investment attractive. I'm not saying 'this is all right' - just that this is perfectly legal - at least at the moment. It is not tax evasion. HMC can know all about this, and it is acceptable under current laws and regulations - at least AFAIK.

[Sebrof]

I'm no tax lawyer or finance specialist either - just going by the little I've read about this.

 

Sebrof - I don't mean to gloss over this resulting in delay in paying tax, or paying less tax - as I said, there are tax advantages if structured for tax deferral - this is one of the key things that makes offshore investment attractive. I'm not saying 'this is all right' - just that this is perfectly legal - at least at the moment. It is not tax evasion. HMC can know all about this, and it is acceptable under current laws and regulations - at least AFAIK.

 

I didn't say "tax evasion", I said "tax avoidance". I am aware of the difference. The point is, you pay less tax, and that makes the IOM a tax haven. It is disingenuous to pretend otherwise, and serves only to make people who claim we are NOT a tax haven look either stupid or devious.

 

Much better, in my view, to say that there may be tax advantages to people who invest here (by virtue of having lower tax rates), but that we do not facilitate tax evasion, money-laundering, or concealment of funds.

 

S

[Skeddan]

Sebrof - I didn't say you weren't making a distinction between tax avoidance and tax evasion, I was just attempting to answer your question:

 

If (heaven forfend) he is wrong about the tax posiition - and I fear he may be, then what is the attraction of a UK resident putting his money here?

 

Maybe someone who is expert in this will correct it, but from what I can make out there can be perfectly legal tax advantages for a UK ordinary domiciled resident putting money in IoM which does not involve tax evasion (which seemed to be the point in question).

 

How offshores are used for legitimate and legal tax avoidance, tax sheltering or as tax haven or tax sanctuary is, as you say, quite different from tax evasion, concealment of funds and money laundering. Quite possibly there are some areas which need improvement. Having IEA's is key part of this. See for example Wyly case on how IoM was used to avoid US tax liabilities. I'd think that relatively little would be lost by closing loopholes on abuses. Hopefully most of the finance sector income is from legitimate and lawful practices.

 

You should also be wary of how can slip into making legitimate tax structuring sound 'wrongful', e.g.:

 

This is tax avoidance, pure and simple. Legal, perhaps, but resulting in a loss of tax to the UK.

 

The only sense in which there is a loss of tax to the UK from legal tax avoidance is because people are making use of UK tax laws in order to minimise their tax liabilities. There is no 'loss of tax' as such since that tax liability was not incurred. The only tax being lost is a tax liability that does not exist but which you may think ought to.

[Gladys]

That was my point, 20 posts ago! The phrase 'tax haven' has a whiff about it that we should be willing to be associated with.

 

Although I am not involved in the banking sector, I would say that the majority of people using the IOM will be outside of the UK altogether or UK resident non-domiciled. The UK tax treatment of this catefgory has been pretty favourable for years and has led to the UK being accused of being a tax haven also. However, the last budget saw some sweeping changes which may make that market a little less available to us.

 

Like it or lump it, people do like to be able to undertake estate, succession, asset protection and tax planning and we can assist them. Providing we are not faciltiating money laundering (which includes tax evasion by the by) and are adhering to the high standards set by international organisations which have a keen interest in how we conduct our affairs, then we should not feel we are dealing in murky business.

[La_Dolce_Vita]

The only sense in which there is a loss of tax to the UK from legal tax avoidance is because people are making use of UK tax laws in order to minimise their tax liabilities. There is no 'loss of tax' as such since that tax liability was not incurred. The only tax being lost is a tax liability that does not exist but which you may think ought to.

 

This is what I thought the whole issue was about, but it is something I am little unclear on. Isn't it all about the fact that people and businesses can minimise their tax liability and in doing so would pay less to the government than they would if there were no opportunities to minimise? If that is the case then I would think it far better if people and companies could not avoid tax, but it would be unfair to ONLY penalise the Isle of Man is other nations have different regimes which makes tax avoidance possible.

 

Am I also right in thinking tha the ability to minimise your liability relates very much to how much wealth you have, i.e. the rich can do it far more easily? I know this is a different issue, but if it is the case then I hope Obama is successful. My only concern would be the impact on the people on the Island, as I would assume that the impact would be very sudden if the Island could not operate as a tax haven.

[Sebrof]

You should also be wary of how can slip into making legitimate tax structuring sound 'wrongful', e.g.:

 

This is tax avoidance, pure and simple. Legal, perhaps, but resulting in a loss of tax to the UK.

 

The only sense in which there is a loss of tax to the UK from legal tax avoidance is because people are making use of UK tax laws in order to minimise their tax liabilities. There is no 'loss of tax' as such since that tax liability was not incurred. The only tax being lost is a tax liability that does not exist but which you may think ought to.

 

Skeddan, I think you are still trying to skirt around the issue. In common parlance, a foreign jurisdiction which allows somebody to escape paying tax, or so much tax, in his country of residence is a tax haven.

 

It matters not whether it is legal or illegal. Avoidance or evasion.

 

I detect that there is common ground between Gladys and myself on this. While there is a tax benefit to investing in the IOM, then whatever we call ourselves, others will call us a tax haven. So let's accept and embrace the term, and try to dissipate some of the pejorative connotations.

 

We are a legal, cooperative, and open tax haven, which works with other countries to eradicate tax evasion and money-laundering. (They are usually part and parcel of the same thing, but not invariably.)

 

S

 

PS: Skeddan, of course there is a 'loss of tax'. The tax liability that would have arisen has been avoided by using the IOM. The fact that it may have been legal doesn't alter the fact that if it were not for the IOM (or alternatives), the tax collected would have been greater.

[pongo]

whatever we call ourselves, others will call us a tax haven. So let's accept and embrace the term, and try to dissipate some of the pejorative connotations.

 

The expression is inherently pejorative - rather than merely having pejorative connotations.

[Skeddan]

Skeddan, I think you are still trying to skirt around the issue. In common parlance, a foreign jurisdiction which allows somebody to escape paying tax, or so much tax, in his country of residence is a tax haven.

 

PS: Skeddan, of course there is a 'loss of tax'. The tax liability that would have arisen has been avoided by using the IOM. The fact that it may have been legal doesn't alter the fact that if it were not for the IOM (or alternatives), the tax collected would have been greater.

 

No I'm not trying to skirt the issue. I wasn't even discussing the use of the term 'tax haven' - simply how there can be legal tax advantages to UK residents and answering your question.

 

As for 'loss of tax' - well in that sense so what? There is a 'loss of tax' in all sorts of things. The UK gives all kinds of tax breaks and concessions which result in 'loss of tax'. Zero VAT on children's clothes are in that sense a 'loss of tax'. If you buy children's clothes have you 'escaped paying VAT' and have avoided your VAT liability? Is Mothercare a tax haven? Is that string of shops sitting in the high-streets of the UK responsible for loss of millions to the UK Treasury?

 

The UK chooses to have these tax concessions - it could close off the means for obtaining such tax advantages and gather more tax that way - but for whatever reason it chooses to maintain these concessions. A catch-all general anti-avoidance rule (GAAR), stiff penalties (with 150% of original tax charged) etc. would go a long way. IMO this is what the UK probably ought to be doing - but they don't. IMO the UK should put VAT on children's clothes - the concession mainly benefits the rich at the expense of loss of tax, but they choose not to. Is Mothercare to blame?

 

An NZ tax resident cannot get tax deferral advantage of offshore while a UK resident can. Why? Because NZ has a GAAR - all that structuring and engineering for the purpose of reducing tax liability is tax avoidance, and if that is it's primary aim it cannot be used to minimise tax liability, even if technically it gets around tax liability. UK doesn't have a GAAR. It is not the IoM which gives the tax breaks - it is the UK and other jurisdictions which have tax regimes which give these breaks and which allows tax to be minimised in these ways. IoM is not a tax haven for an NZ Resident, it can be for a UK resident. What does that tell you?