Buck's Road, Douglas
Isle of Man IM1 3TX
+44 (0) 1624 685400
The Manx Income Tax Acts require that an employee is liable to income tax on any income derived from the "annual profits or gains of or in respect of or from any ... employment". Over the years this has been interpreted by the Courts to include not only actual cash payments but also what has become known as "money's worth". This principle extends the charge to encompass benefits capable of being converted into money and also payments made by an employer which meets a pecuniary liability of his employee. An example of the former is share options whilst an example of the latter is an employer meeting an employees tax liability.
There have been several tax cases in the United Kingdom involving the acquisition of share options and/or shares by employees, such acquisitions arising by virtue of their employment. Although not binding on the Isle of Man they do provide guidance as to how the legislation should be interpreted. The basic principles that come out of the cases are:
The Extra Statutory Concession (ESC) is effective from 6 April 1989 and provides for exemption from income tax on benefits arising on or after that date from the following approved schemes -
The schemes must conform to the United Kingdom legislation on the subject and must be approved by the Assessor. It is the intention to introduce legislation in the next Income Tax Bill to provide a more permanent legal framework. The United Kingdom legislation on which the ESC is founded is very complex and ways will be sought to simplify that approach.
The main requirements enabling a scheme to qualify for such approval are:
The legislation relevant to such schemes is fairly complex but the main requirements for approval are:
|Less than 4 yrs||100% charge|
|4 yrs or over but less than 5 yrs||75% charge|
|on or after fifth anniversary||no charge|
There is a special reduction for disposals on or after retirement.
The following information should be forwarded:-
Savings-related share option schemes
(a) a copy of the rules of the scheme;
(b) a copy of the form of contract under which the options will be granted;
(c) a copy of any documents which will be issued to participants in connection with the scheme; and
(d) a copy of the Inland Revenue approval, if appropriate.
(a) a copy of the trust deed under which the scheme has been established;
(b) as for (c) above
(c) as for (d) above.
All applications should be forwarded to the Technical Officer at the Income Tax Division.