Isle of Man Finance

The Isle of Man is the perfect location for wealthy individuals and the Island enjoys an enviable reputation as an international financial centre of high standing. With 24 years of unbroken economic growth it has one of the strongest economies in Europe. This has given the Island the ability to react to rapidly changing operating environments. In 2006 the Island used its financial strength to introduce a new tax regime designed to attract entrepreneurs. First, it reduced its rate of corporate tax to zero percent in order to encourage the establishment of new businesses and to secure its financial services sector for the future. This move was very well received by its corporate service providers – one of the driving forces of its financial sector. The Island’s government then turned its attention to the issue of personal taxation. With a lower rate of 10% and an upper rate of 18%, combined with generous personal allowances and reliefs, it felt it could go further to attract wealthy entrepreneurs – the drivers of wealth creation across the world. The introduction of a personal tax cap of £100,000 per annum, per individual was the result.

The Island, with its green open spaces framed by clear blue sea and sky, has a very low crime rate and enjoys an excellent quality of life that its residents value highly. It is a wonderful place to live and clearly the tax advantages are huge. What, then, are the advantages to locating personal wealth there? When it comes to wealth management there are some specific requirements and these can be listed as follows: a stable political environment; a proven legal system; an appropriate time zone; international standards of regulation; access to the worlds’ banking system; high quality professional advisers; suitable products and services.

The Isle of Man can tick the boxes on all of these key requirements. In recent times we have seen the emergence (or re-emergence) of the family office as a suitable vehicle to manage personal wealth and family business activities. For the very wealthy, a family office ensures that the family have control of their wealth. It can provide for succession planning, asset management, business management and concierge services. It also provides a platform for the cost effective provision of highly personalised solutions to wealth management issues. The same key attributes also provide the ideal environment for individuals to manage their wealth and businesses effectively.

Typically, a family office would hold both Corporate Service Provider and Trust Service Provider licences which, issued by the Island’s Financial Supervision Commission, give comfort to the family by ensuring certain standards are adhered to in the day to day dealings of the office. Very often the office would also hold an Investment licence that enables it to provide advice on a wide range of asset management issues. The regulatory system is very similar to that of the UK and the Island recognises the importance of being well regulated. Indeed all of our trust and company services providers are similarly regulated. Another key strength is the Island’s legal system which is very closely aligned to the UK system. It is based on the “common law” system and the Island’s ultimate court is the Privy Council in the UK.

Having a sound legal system and being regulated to international standards provides an excellent operating platform. The Island’s comprehensive legislation provides a number of tools to hold and manage assets on behalf of wealthy individuals and families.

The private trust company is becoming more popular and our legislation is class leading. These vehicles are increasingly used by wealthy families as they can avoid the use of professional trustees. Essentially the family forms its own company to act as trustee of a family trust. The administration can be outsourced but decisions may be kept within the family as the board is often formed with family members. Some jurisdictions require onerous licensing of this type of arrangement whereas the Isle of Man regulators will take a pragmatic approach to this situation requiring only that the administrator is regulated. This approach may be suitable for multi-family offices and single family offices.

Trusts are an important tool for succession planning and can also play a part in tax planning. Discretionary trusts are a traditional common law asset protection vehicle and offer good flexibility. Purpose trusts can have both private wealth management and commercial applications. As a private wealth management tool, they can be used to remove something from family ownership temporarily, permanently or conditionally. In commerce, they can hold off balance sheet items. The importance of trusts in wealth management is evident and requires a jurisdiction to have a robust and proven legal system. Also of importance is the provision for corporate entities that can be used for bona fide trading purposes or asset holding purposes.

The Isle of Man has two types of company legislation available. The first is referred to as the “1931 Company” that has the origins of its unofficial name in the fact that the structure can be dated back to the 1931 Companies Act. There have been many revisions since but the title has endured. This structure is a more traditional structure that has a number of checks and balances between directors and shareholders and is sometimes preferred for trading purposes. The recently introduced 2006 Companies Act has given rise to a new breed of company that is streamlined and has some similarities to the other popular international models. The focus is on flexibility with greater discretion given to directors and a reduction in the administrative burden. This vehicle is ideally suited to asset holding purposes and is rapidly growing in popularity.

Funds are an excellent way in which to apportion and manage assets. Family offices have used funds to good effect and the focus on effective regulation has increased. Often the fund is restricted to family use and so a light regulatory touch is all that is required. The Island’s funds legislation offers freedom from restriction on asset classes, trading strategies and leverage. There are no prescriptive requirements regarding the composition of the board of directors of an exempt scheme and the corporate fund vehicle will also benefit from a tax neutral position. The zero rate of corporation tax in the Isle of Man is a perfect fit.

The Island has a safe, stable environment together with an excellent legal system and international standards of regulation. This is combined with access to a range of class leading structures that can be utilised to preserve and manage wealth on behalf of the families and individuals. The Isle of Man has also demonstrated that it is aware of and able to adapt to the ever-changing world of financial services - preserving its “edge” and giving certainty to the future.

For further information please contact Nick Boon, Senior Business Development Manager or contact Philip Dearden Head of the Association of Corporate Service Providers and John Rimmer Chairman of STEP.