IOM Tax Solutions

The best and worst of times..

Marriage

For the tax year during which you got married, you will be assessed individually. You will then have the option to elect for joint taxation in the next tax year. This will mean that you will both be jointly and severally liable for all your joint tax affairs. In the absence of any election, you will continue to be assessed individually.

You have the choice to be either jointly or independently taxed. In the absence of any election, you will be assessed independently.  In most instances it is preferable to be taxed jointly as allowances and rate bands are freely transferable.  These can easily be wasted if you are independently assessed.  Any unused allowances, deductions or 10% band of tax may not be transferred to the other partner. The restriction on the transfer of unused amounts could result in an increased combined liability.

Jointly assessed, you will receive the married couples allowance, which is equal to twice the single persons allowance and in addition deductions and 10% band of tax will be automatically off-set against the joint income of both persons when being assessed. If employed, during the year, it is possible to offset unused allowances etc. from one spouse to another by adjusting each person's tax codes preventing too much tax from being deducted.

A claim needs to be made no later than 31 December during the first year of assessment that you wish the election for joint taxation to apply for.

Should you wish to choose independent assessment If you are newly married or a new resident, you do not need to do anything as the default position is independent taxation. If you are currently jointly assessed, either you or your spouse must revoke your claim.  Both persons each receive the single persons allowance (time apportioned for new residents). Both partners also receive the full benefit of the 10% band of tax.  Relief for any allowable deductions is given to the person who made the payment. Joint payments are allocated on an equal basis unless shown that the allocation should be different.

Separation

If you were previously jointly taxed up to the date that you separated, you will  each need to complete separate income tax return forms, making claims for deductions and paying your own tax.

The treatment for the income tax year in which you separate is as follows:-

If you were jointly assessed

With effect from the year of assessment in which the permanent separation has taken place, both spouses are treated as single persons.

For later tax years:-

The husband is treated as a single person and assessed only on his income.

The wife continues to be treated as a single person, and assessed only on her income.

If you are independently assessed

As both partners are treated as single individuals throughout, only one assessment is required on each partner and only one single allowance is granted to each partner in the year of separation.

Relief for deductions ie mortgage interest

Tax relief is granted to the person or persons paying the interest and owning the property. However, following separation, you may be able to claim relief even if you do not own the home that you shared before the separation. To make a claim you must be able to show that you have paid the interest. If husband and wife each pay part of the interest, the relief is divided between them.

Maintenance payments

Only the type of maintenance payment which is legally enforceable i.e. ( made under an Order of Court or other legally binding written agreement ) is allowable for income tax purposes. If payments are allowable, the payer will be allowed a deduction from income on the amount paid in the year in which they are made.

In order to be allowable, the payments must be by one of the parties to either the other party for their general maintenance or for the benefit of a child of the family for its general maintenance and/or education, or to a child of the family for its general maintenance and/or education.

There are certain conditions the payments must satisfy:

a)The agreement or Order must be made in the Isle of Man or if there is an Order made under a competent jurisdiction outside the Isle of Man both parties to the Order must be resident in the Island

b)The person making the payment must be resident in the Island

c)The payment must be regarded as income in the hands of the recipient who, in turn, must be assessable to Manx income tax on it, i.e. resident or non-resident tax

d)The two parties concerned must not be living together as man and wife at the time any of the payments are made. .

Voluntary arrangements are not usually assessed on the recipient or allowed as a deduction by the payer.

Please note that payments made to a non-resident under a Manx order or agreement, are considered to be the Manx source income of the recipient and therefore subject to Manx non-resident tax at source.   Tax is required to be deducted from the payments.

Tax on maintenance payments

Maintenance payments (except for voluntary payments) are part of your income. They will be taxed if your total income is large enough for you to pay income tax. How you pay the tax depends on your personal circumstances.

If you are working, your maintenance payments may be incorporated in your tax code, and income tax paid through deductions from your pay. You should show maintenance payments in any tax return you are asked to fill in. If you should have received payments, but they have not been paid ( or only partially paid ) to you, you will need to inform the Division so that your tax position can be reconsidered.

Maintenance of a child

If the payments for maintenance of a child under a legally binding agreement or Court Order are payable to you, then they are treated as your income.

But if under the terms of the Court order, they have to be paid directly to the child, then they become the income of the child. In this case, there will only be tax to pay if the total of the payments and other income is more than the allowances that the child is entitled to, and an assessment will be raised on the child.

Overseas Court Orders

If the Court Order is made outside the Isle of Man and the maintenance recipient is not resident in the Isle of Man, the payments made are not deductible from the payers income arising in the Isle of Man.

Concessionally, payments will be allowed as a deduction from any income the payer receives from the country in which the Order has been taken out, up to the level of that income only.

It is pointless throwing tax relief away.  You can draw up an agreement yourselves which you can both revoke at a later date.  Please note that the person who the payment is made to is taxable on the payment.  It is therefore preferable to make payments to children rather than to the spouse.  If you have any doubt you should take advice.  This agreement will enable you to obtain tax relief until such time as formalities are properly agreed and professional legal advice should be obtained in respect of this.

Example of a legal agreement

This agreement dated  “enter date it is to take effect”     between  “names and addresses of the parties separating” .Whereby “enter names of the parties separating again” have entered into a permanent separation, their marriage having broken down:

It is hereby agreed that  “Name of payer”  shall pay “name of payee(s)( spouse or children)” the sum of “££££’s”     “ [each or otherwise, please specify]” per calendar month until “ (enter a certain date) or the occasion of an event for example a child attaining 16 years)”.

--------------------------------------Signed            Husband

In the presence of:

--------------------------------------Witness

---------------------------------------Address

---------------------------------------Signed           Wife

In the presence of

---------------------------------------Witness

---------------------------------------Address