Home Owners About To Get Shafted By Government

[FCMR]

From the front Page of todays Examiner.

TAX RELIEF UNDER THREAT.

Mr Bell at the Treasury is looking for money to cover his C*** up, it looks like he wants to scrap Mortgage relief, life insurance relief and loans interst relief, in doing so he will raise some £11,6 million to help fill the gap caused by the introduction of zero tax for companies.

 

Is the Man a fool or what, or is he playing the old hand knowing the Government can always get away with shafting the locals

[Declan]

Is this serious or is it another misreading by FCMR?

[FCMR]

[FCMR]

And I dont see why home owners/buyers should pay for those in LGB/Corpy houses

[sarahc]

If the Government is serious about encouraging home ownership they should keep it.

[Brickster]

I was sent this :

 

 

 

 

 

IM1 3TX Date:

12 January 2006

The System of Tax

Reliefs for

Individuals in the

Isle of Man

A Consultation Document

Issued by:

Income Tax Division

2nd Floor Government Office

Buck’s Road

Douglas

IM1 3TX

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 2

Index Page

1.

Introduction …………………………………………………………………………. 3

2.

The aim of the consultation …………………………………………………… 3

3.

How the system works …………………………………………………………... 3

4.

Illustrative figures ………………………………………………………………... 4

5.

Mortgage interest ………………………………………………………………….. 5

6.

Loan interest ……………………………………………………………………….. 5

7.

Life insurance ……………………………………………………………………… 6

8.

Maintenance ………………………………………………………………………….. 6

9.

Educational deeds of covenant ………………………………………………. 7

10.

Charitable deeds of covenant and charitable donations ………… 8

11.

Private medical insurance ……………………………………………………… 8

12.

Nursing expenses ………………………………………………………………… 9

13.

Mariner’s earnings exemption ……………………………………………… 9

14.

Training relief ……………………………………………………………………… 10

15.

General expenses ………………………………………………………………… 10

16.

Capping total deductions ……………………………………………………… 11

17.

Capping individual deductions and reliefs …………………………… 11

18.

Transition …………………………………………………………………………… 12

19.

Submissions ……………………………………………………………………… 13

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 3

1. Introduction

Part of the Taxation Strategy, approved by Tynwald in October 2000, stated

that, “Deductions from income will be simplified to leave only those which

either secure the elements that are essential to quality of life or encourage

personal enterprise such as housing costs, child care and business start-ups.”

In his Budget speech of 15 February 2005 the Treasury Minister, the

Honourable AR Bell MHK, restated that “…we would simplify our system of

deductions…”. He went on to confirm that “…the Assessor will start

consultations this year with the aim of advising Treasury before next year’s

Budget on the best ways of introducing simplification. ”

It is accepted that any limitation or removal of tax deductions would increase

the amount of tax received by Treasury. If Treasury decide to move in that

direction, further consideration would be needed in respect of how the

Government should best use that increased tax yield.

2. The aim of the consultation

The aim of this document is both to inform and to seek the views of the

public about the tax relief system for individuals. In some cases the relief

granted for certain deductions is negligible, the reason for introducing it may

no longer be relevant and it can be complicated or time-consuming to

administer for the claimant.

Options:

• to leave the current system as it is;

• to simplify the rules;

• to cap or abolish certain deductions; or

• to limit the total amount of deductions available to each

individual.

This document describes these options in more detail.

3. How the system works

Section 31A of the Income Tax Act 1970 gives Treasury the power to

determine the deductions allowable for income tax relief. The majority of the

deductions are described in Government Circular 374/89, Income Tax

(Deductions) (Prescribed Cases) Order 1989. Where a particular expense has

been determined to be tax-deductible, it is simply deducted from the person’s

pre-tax income before tax is assessed.

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 4

In order to receive tax relief for a deduction, an individual must first be a

taxpayer. The amount of relief granted will then depend on the amount of the

deduction claimed and the individual’s income. In most cases, deductions lead

to relief being given at the individual’s highest rate of income tax.

Example

Three married couples with different family incomes have an allowable

deduction of £3,000. Tax relief will be as follows:

Deduction (£) Income (£) Highest

rate of tax

Tax relief (£)

Couple A 3,000 16,000 0% 0

Couple B 3,000 30,000 10% 300

Couple C 3,000 50,000 18% 540

This example shows that the income tax system gives different amounts of

tax relief depending on the income of the individual or couple.

It could be seen as unfair that couple C receive £540 worth of relief whilst

couple B receive £300 and couple A receive no benefit, yet they all have the

same tax-deductible expense.

4. Illustrative figures

The table below shows the cost of the principal tax reliefs for individuals and

the number of people or couples claiming them. The figures are based on the

2003/04 tax year (which ended on 5 April 2004), the last year that has been

completely reviewed.

Deduction Number of claims Cost of tax relief (£)

Mortgage interest 14,320 6,727,657

Loan interest 17,573 1,723,894

Life insurance 21,343 1,382,732

Maintenance 1,047 479,792

Educational covenant 754 522,911

Charitable covenant 838 112,922

Charitable donation 1,268 145,716

Private medical insurance 925 203,127

Nursing expenses 407 170,582

Mariner’s exemption 40 130,716

Training expenses 79 6,860

General Expenses 84 25,483

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 5

5. Mortgage interest

Mortgage interest relief is allowed where interest is paid to a lender that is

itself subject to Manx income tax on the interest received “as income of the

lender.” The lender may be non-resident. A certificate of interest paid each

year is issued by the lender and the system gives tax relief for all interest paid

without limit, and without regard to the number of properties financed by

mortgage. The fact that lenders issue borrowers with a certificate that can be

included with their tax return makes mortgage interest relief straightforward

to administer.

There is no intention in this document to open any debate in respect of the

tax-deductibility of mortgage interest as a trading expense or as an expense

against rental income.

Mortgage interest relief may:

1) Encourage property purchase rather than property renting (including

government provided houses), although it is not clear why government

should encourage such an economic trend, and clearly people renting

may consider that they are being treated unfairly.

2) Bolster the economy by ensuring that financial institutions provide

mortgages in the Isle of Man.

Options:

• to leave this relief as it is;

• to restrict mortgage interest relief in some way (e.g. by

allowing it in respect of an individual’s main home only);

• the amount of relief could be capped at a level to be

determined;

• the relief could be withdrawn.

6. Loan interest

Loan interest relief is allowed on the same basis as mortgage interest relief.

Loan interest relief probably supports local lenders, in that their loans are

seen as more attractive to Manx borrowers because of the tax relief.

Reduction or withdrawal of the relief could therefore have an impact, not only

on the lenders’ businesses, but also on other sectors where a loan with tax

relief on the interest component may influence the decision on whether, for

example, to buy a car or a piece of furniture. Should any changes be made

to loan interest relief, they will need to be linked to mortgage interest relief

changes, as otherwise the potential might be created to use mortgages for

non-property purchases or general loans for property purchases.

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 6

Options:

• to leave this relief as it is;

• to restrict loan interest relief in some way (e.g. by defining

allowable purposes for the loan);

• the amount of relief could be capped at a level to be

determined;

• the relief could be withdrawn.

7. Life insurance

Life insurance premium relief is a complex area, due in part to the wide

variety of policies (including insurance bonds and single premium policies)

currently available. The total amount of relief allowed is relatively low in

comparison to the number of claims made. Many individuals have more than

one policy, and the Income Tax Division needs to review carefully this aspect

of their tax returns each year.

The relief itself is restricted to a maximum of one-sixth of the total income of

the individual or 15% of the capital sum assured at death; then 50% of the

actual premiums paid are tax-deductible.

At present, premium relief is not given in respect of critical illness policies with

no death benefit and yet they are often taken out by individuals for similar

reasons to life insurance policies.

Life insurance premium tax relief may have social considerations, but that

might be part of a broader debate relating to the desirability of encouraging

saving for old age / infirmity / support of dependents versus the taxation or

otherwise of investment products.

Options:

• to leave this relief as it is;

• the amount of relief could be further restricted or capped;

• the relief could be withdrawn.

8. Maintenance

Where maintenance is paid under a court order or legal agreement (including

an agreement allowable by the Income Tax (Deductions) (Prescribed Cases)

Order 1989) the payer receives tax relief in the form of a deduction and the

recipient pays tax on the maintenance received as income.

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 7

Problems can arise when the payer fails to keep to the terms of the legal

agreement and does not pay maintenance or pays it late.

In recent years there has been a tendency to make court orders for

maintenance in favour of the child rather than the parent / guardian who has

custody. This arrangement avoids the parent with custody being taxed,

(providing that the maintenance amount is less than the personal tax

allowance of the child), yet the payer is still entitled to receive tax relief.

Maintenance payments made under a Manx court order in favour of nonresident

individuals are liable to Manx non-resident income tax. As a

consequence, a significant number of people (including minors) are suffering

non-resident income tax. This causes an administrative burden for the payer,

who is required to deduct the non-resident income tax at 18% ‘at source’

prior to payment.

Options:

• to leave this relief as it is;

• to withdraw tax relief and amend the income rules

simultaneously so that no relief is given to the payer of

maintenance and the recipient is not taxed when they receive

it.

9. Educational deeds of covenant

This relief results in a tax saving for the parent or grandparent of a young

person in higher education where an educational deed of covenant has been

made. The money received by the student under the terms of the deed of

covenant is considered to be taxable income, but in most cases the total

income of the student is less than their personal tax allowance and so no tax

is due.

In view of the level of financial support that Manx students already receive

from the government, arguments in favour of this relief do not appear strong.

Options:

• to leave this relief as it is;

• the amount of relief could be restricted or capped;

• the relief could be withdrawn.

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 8

10. Charitable deeds of covenant and charitable donations

Tax relief is granted to individuals (and companies) where a deed of covenant

has been made in favour of a registered charity for a minimum period. Relief

is also allowed for donations of £100 or more made to charities. Smaller

regular donations over the course of a tax year that total £100 or more also

attract the relief. Charities are not liable to income tax on the donations that

they receive.

Charitable giving is a key feature of Manx society, and any change in this

relief could result in a downturn in the number of covenants set up in favour

of charities, and hence in the income of charities.

The United Kingdom operates the Gift Aid scheme. Covenant and donation

payments do not result in tax relief for the payers but the recipient charity

makes a claim at the end of the year for a ‘grossing up’ of their donated

income, in effect the notional tax relief that donors would have received.

A Manx Gift Aid system could be easier to administer than the current relief

rules and could lead to increased income for charities, although we also note

that it might add somewhat to the administrative burden for charities

themselves. However, there could also be a short-term cost to Treasury as

not all of the donations made to charities are currently claimed as taxdeductible

by donors, whereas we would assume that charities would seek to

maximise their grossed-up income.

Options:

• to leave this relief as it is;

• the amount of relief could be restricted or capped;

• to move to a Gift Aid system, either generally or restricted to

Isle of Man-based charities only;

• the relief could be withdrawn.

11. Private medical insurance

Giving tax relief for private medical insurance premiums reduces pressure on

the National Health Service. It is a complex relief to administer, having

various rules regarding the eligibility of insurance contracts. There is already

a cap of £1,800 per individual on the amount of premiums that can be

deducted for tax purposes.

Unlike most other deductions private medical insurance relief can be given to

taxpayers who pay the insurance premiums for another person, provided the

insured person is over the age of 60.

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 9

Options:

• to leave this relief as it is;

• the amount of relief could be further restricted;

• if pressure on the Health Service budget is severe, there may

be an argument for extending this relief;

• the relief could be withdrawn.

12. Nursing expenses

The reasons for having private nursing expenses relief are similar to those

relating to private medical insurance relief. To obtain the relief the claimant

must provide a letter from their doctor certifying that the patient is mentally

or physically incapable of taking care of themselves and requires round the

clock nursing support from either a registered nurse or within a facility to

which the Nursing and Residential Homes Act 1988 applies.

Options:

• to leave this relief as it is;

• the amount of relief could be restricted or capped;

• if pressure on the Health Service budget is severe, there may

be an argument for extending this relief;

• the relief could be withdrawn.

13. Mariner’s earnings exemption

Under the old rules, a mariner working in overseas waters would not pay

Manx income tax on their earnings from that work. In addition, mariners

were able to claim the full married couple’s allowance (if applicable), and any

general reliefs, which could then be set against their wife’s income.

The Income Tax (Amendment) Act 2004 restricted the amount of tax-exempt

income (after expenses) to the equivalent of the single person’s allowance.

Consequently the amount of tax relief available to a mariner is reduced.

Options:

• to leave this relief as it is;

• the amount of relief could be further restricted;

• the relief could be withdrawn.

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 10

14. Training relief

Very few claims for training relief are made. This may be due to the

complicated rules associated with the relief and the fact that the legislation

still refers to National Vocational Qualifications, which are outmoded. Only

certain types of course fees are eligible for relief and these do not include

professional qualifications such as law and accountancy.

This relief was introduced to encourage individuals to train or re-train.

However, it is unlikely that tax relief is the key factor when people decide

whether to undertake a training course. It could also be argued that the

income tax system is not the best route for giving government assistance for

this type of expense.

Options:

• to leave this relief as it is;

• the amount of relief could be restricted or capped;

• a new approach to supporting re-training could be developed;

• the relief could be withdrawn.

15. General expenses

Section 31B of the Income Tax Act 1970 gives Treasury the power by Order

to define deductions from remuneration:

“…with respect to any class of individuals who are in receipt of any

remuneration, that such individuals are obliged to lay out and expend

money wholly, exclusively and necessarily in the performance of the

duties in respect of which such remuneration is payable.”

To date, no Orders under this legislation have been made and a claim under

section 31B often results in correspondence between the Division and the

taxpayer or their adviser. The amounts claimed under section 31B are usually

very small, resulting in minimal tax relief (e.g. specialist clothing might cost

£75 resulting in a tax saving of less than £13.50) that is probably less than

the cost of making the claim.

Treasury’s most up to date information shows that 1,464 claims for ‘tools and

clothing’ expenses were dealt with, of which 1,150 were for less than £100

and only 147 were for more than £200. Similarly, 3,178 claims for

‘professional subscriptions’ were dealt with, of which 1,109 were for less than

£100 and only 462 were for more than £200.

It should be mentioned here that people with trades can deduct trade-related

expenses by virtue of different rules, and this consultation is not about those

rules.

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 11

Options:

• an Order could define how the relief should apply (e.g. types of

expense or particular professions such as nurses or teachers);

• to leave this relief as it is;

• the relief could be withdrawn.

16. Capping total deductions

A simplification in the system might be to cap the total amount of deductions

that a person can claim. This cap might be doubled for married couples.

It is estimated that if a cap of £5,000 on total deductions was introduced,

3,220 individuals or married couples would be subject to an increased income

tax liability, at a saving to Treasury of £1.65 million. If the amount was

£10,000 then 447 individuals or married couples would pay more income tax,

and the saving to Treasury would be £430,000.

Example

An individual pays mortgage interest of £4,500, loan interest of £750 and life

insurance premiums of £1,100.

Currently they would be entitled to a personal allowance and the total of the

deductions of £5,800 (life insurance premium relief is on 50% of the

premiums paid). If a cap of £5,000 was introduced, £800 of tax-deductible

expense relief would be lost.

Options:

• an overall cap may not be appropriate;

• an overall cap could be introduced at a level to be determined.

17. Capping individual deductions and reliefs

Individual deductions and reliefs could be subject to a cap rather than

capping total deductions.

Mortgage interest

If mortgage interest relief was capped at £5,000 then 2,304 individuals or

married couples would pay more income tax and Treasury would save

£369,000; only 324 would be affected if the cap was set at £10,000, and

Treasury would save £79,000.

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 12

Loan interest

If a cap on mortgage interest was to be introduced, loan interest should

probably be included in the same cap for the reasons mentioned earlier in this

document.

Life insurance

If life insurance relief was capped at £1,000 then 6,360 individuals or married

couples would pay more income tax and Treasury would save £538,000, but

only 299 individuals or married couples would be affected if it was set at

£5,000 and Treasury would save £82,000.

Options:

• individual deduction and relief caps may not be appropriate;

• individual deduction and relief caps could be introduced at

levels to be determined.

18. Transition

Should it be decided that a relief should be removed or capped there are

several options for achieving it:

Option 1 – Remove the relief completely with effect from a given date. This

would result in some individuals paying more income tax from

that date. There is little complication and minimal administration

associated with this option.

Option 2 – Use a transition period during which the relief is reduced over a

period of several years until it is completely removed. This may

result in some individuals paying increasing amounts of income

tax over a period of several years. This will add some complexity

to an individual’s income tax affairs.

Option 3 - “Grandfather” existing relief claims but abolish relief on new

claims. There will be no effect on individuals who are currently

receiving tax relief for a given deduction. New claimants will not

receive tax relief but are not suffering increased tax payments.

The complexity factor should be minimal.

Option 4 - The tax rate at which relief is allowed could be reduced for all or

certain deductions. Previously relief for life insurance premiums

was granted at a rate of 10% from the total income tax liability

of the individual. Depending on the rate chosen this option may

mean that some individuals may pay more income tax.

The Treasury, Yn Tashtey Income Tax Division

The System of Tax Reliefs for Individuals in the Isle of Man – Consultation Document

Issue Date: 12 Jan 06 Page 13

19. Submissions

Anyone wishing to submit their views in relation to this document is invited to

do so, in writing, by 17 February 2006 to:

Chris Barber

Legislation Officer

Income Tax Division

2nd Floor Government Office

Buck’s Road

DOUGLAS

IM1 3TX.

Email: consultation@itd.treasury.gov.im

[simon]

Mortgage interest tax relief was abolished ages ago in the UK, wasn't it? Abolished under the Labour government - but had been gradually reduced under the previous Conservative governments.

 

Is there actually any good argument in favour of mortgage interest tax relief? Given that borrowing rates are now so relatively low. It isn't the high cost of borrowing which prevents some people from buying their own properties.

 

If the cost of typical property is directly proportional to the cost of typical borrowing - then removing mortgage interest tax relief on new borrowing would put downward pressure on property prices. So removing mortgage interest tax relief on new borrowing might have no long term effect on the affordability of housing - since it would simply remove an inflationary factor. If people can afford to borrow less then property prices fall in proportion.

 

No?

[FCMR]

All this could lead to negative equity, what good would that do, and i know that in my case I could not afford to lose the tax releif on my own home. Its all good and well in saying hit the buy to rent brigade, those same people could up sticks and go as easy as they came here and they could afford to take a hit when dumping the rent market houses back on the open market. The monster has been created, no use just killing it of, the answer is to tame it for some sort of safety to others

 

And I forgot t add, who was it that allowed the speculators to snap up homes that recieved planning permision as first time buyer homes. a good example is at Ballanawin, built for Manx First time buyers at a cost of 28k and now many are owned by speculators

[lfc84]

there shold be higher taxes on those who earn money from rental income on their 2nd or 3rd properties. This would make it less attractive for people to purchase lots of houses and fleece the rental market.

 

 

I don't see why home owners should get such a raft of tax-dodging measures handed to them in the first place.

 

It's not like those of us paying £750 per month on rent to a fat-cat landlord get to claim any sort of "rent relief" now, is it?

 

£750 per month would cover a mortgage. Its a very high amount to pay for rental, so I hope you are trying to save up a deposit.

 

All the above said though, I think it is worth stating that in most cities in the UK you could well pay £600+ for a 2 bed rental in a decent part of town.

 

Its not just here that has these issues.

 

In respect fo the original post, I think there are many MHK's who seem to be trying to give the electorate a reason to vote them out in the forthcoming elections !

 

After the term many of them have had it would be surprising if there wernt a handful of new faces after the votes have been counted.

[Gladys]

If the cost of typical property is directly proportional to the cost of typical borrowing -

 

But it isn't though, on the IOM the awful "buy-to-let" brigade have pushed prices up well beyond the means of a lot of folks (I'd love to see some seriously punitive taxes to cripple the buy-to-let squad), add in UK speculators coming over here as well (especially as it gives them a good way to invest money and avoid UK inheritance tax) and the cost of borrowing, whilst a factor, is by far from being the only consideration when it comes to sussing out house prices over here.

I agree that buy-to-let is what is having a sustained effect on the cost of saleable properties here. Especially when some landlords own tens, if not scores, of properties. They have a huge portion of the housing stock; sufficient to manipulate the market. Cleverer minds than mine should be looking at that to increase the coffers and put some rationality back into house prices here.

[Grumble]

Word up (see, I'm down with my homies!).

 

C-T and GTBB have got it right - it's the multiple landlords who are buggering up the Manx housing market. Cancel ANY tax breaks for them - their tenants are already buying the bloody houses/flats for them.

 

Of course it's only sour grapes - wish I'd bought some rental property when I had a couple of bob...

[TheTool]

I have to agree we need some sort of extra tax for these property rental companies.

 

There should be a tax that is so much per house that way seeing as they knackered the market they can put something back.

 

Mr Bell is taxing the man on the street more so the company fat cats can enjoy more benefits

[Gladys]

Chopley, I had exactly the same thoughts when I saw that post! Anyone that can afford to save after paying that kind of rent is well out of the housing trap!

 

There should be alot more social housing giving the tenants the opportunity to live somewhere suitable for their needs and at a rent, should they wish to, that will allow them to save up to move into property ownership.

 

In my more extreme moments, I have thought about Rog's post that the IOM Govt could be compared with that of Zimbabwe, except the Govt would "land grab" the buy-to-let properties and reduce the rents to a cost-plus small return level, and in one gutsy, radical movement improve the housing situation over here!

[ian rush]

I have to agree we need some sort of extra tax for these property rental companies.

 

There should be a tax that is so much per house that way seeing as they knackered the market they can put something back.

 

Mr Bell is taxing the man on the street more so the company fat cats can enjoy more benefits

 

 

But won't those who are most heavily geared on borrowings (i.e owners of multiple properties, those in the buy to let) be the ones most affected?

 

I say scrap it it on a phased basis across the board over the next few years.

 

Enforcing the tax on second homes is unenforceable: that system would only work if beneficial ownership of companies were to be disclosed. And that ain't gonna happen

[joeyconcrete]

I get the sneaky impression that the government is starting to become a bit desperate, and its not really filling me with confidence.

 

The problem with the housing market is the fact that a lot of properties are owned by investors, plain and simple. I bought my house from random company Limited, as did a few mates - I've also rented an apartment from random company limited, and it turned out 15 in the block were owned by the same company. From a business perspective its a great earner, you cant blame them - but it does bugger the housing market. I was originally paying more rent than my current mortgage, and I do like the tax relief. It's true though, the rental tenants do get the shitty end of the stick - i was there once. I can only see harsh measures/developments fixing that though.

 

What does Jersey do in regard to housing, don't they have some kind of policy?