Isle of Man Budget 2024: A Pensions Perspective

February 23, 2024

The main themes for the Manx budget for 2024/25 were sustainable finances, long-term stability and an increase in government spending of c£64 million. The expected total government spend for next year is c£1.3 billion, equating to almost £16,000 per person on the Isle of Man. (As a comparison the UK spends c£17,000 per person).

This, coupled with an expected increase in taxation revenues gives a target surplus of just under £1 million for the next tax year, compared to an expected deficit of around £4 million for the current tax year.

Key changes

There were some changes to the tax rates, with the headline one being an increase in the top Income Tax rate to 22% as well as increases to the NI bands. The additional Income Tax is being ringfenced for the Island’s healthcare services.

On the corporate side, tax paid by some banks and large retail outlets will increase to 15%.

Capital spending over the next five years of £274 million has been set aside to progress the Isle of Man Government’s ‘Island Plan’ (which sets out the visions and actions to build a secure, vibrant and sustainable future for the Island).

Impact on Pensions

Focusing on our ‘bread and butter’, pensions, there were no direct changes announced other than the expected increase to the Manx State Pension. The Island, following the UK, has maintained the ‘triple lock’ increases meaning the basic state pension and Manx State Pension will increase by 8.5%. This means that those in receipt of the full Manx state pension will receive an extra £18.83 each week, which is £979.16 more over a year (based on 52 weeks).

Despite no other direct pensions changes, the increase in the top rate of Income Tax will have an indirect impact on both withdrawals from and contributions into pensions. It may also sharpen the focus for any employers considering introducing a salary sacrifice scheme for the benefit of their employees.

Withdrawals

From an individual perspective, anyone planning to take funds out of their pension (other than the tax-free cash element) may now be considering doing it prior to April and subsequently paying 20% tax on the withdrawal instead of 22%.

The difference the timing makes will obviously depend on the size of the (taxable) withdrawal from the pension. To give some brief examples, the saving on a £10,000 withdrawal made prior to April (where the individual’s income is already in the higher rate bracket or they are non-Isle of Man resident) would be £200 (as the tax due will go from £2,000 (20%) to £2,200 (22%) after April). However, someone looking to withdraw a larger amount (perhaps someone seeking to fully encash their Pension Freedoms Scheme (PFS) fund or take a triviality/fund remnant benefit payment on their older pension (under ’78 or ’89 rules)) would make a more significant saving. For example, a £2,000 tax saving on a £100,000 withdrawal – enough for a holiday or a new set of golf clubs perhaps(!)

Contributions

On the flip side, anyone still growing their pension fund and wishing to contribute a lump sum to it (assuming they aren’t near the annual allowance) may consider the fact that a contribution after April for the higher rate taxpayer will receive 22% tax relief as opposed to 20% now. In real terms, this means that a contribution of £10,000 would receive an extra £200 of tax relief if done after the change – enough for a very nice weekend break on the Island.

Salary Sacrifice

For employers considering offering their employees a ‘salary sacrifice’ option for their pension contributions, the increase in the upper rate of Income Tax should make the numbers even more worthwhile to their employees. Likewise, if employers have not yet considered this option, they may be driven to learn more about the benefit this can provide by way of increased net pay for employees.

More information

If you would like to discuss the impact of the Manx Budget on your personal or employer pension further, contact your regular adviser or feel free to get in touch with us at Boal & Co.