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Introduction

The introduction of Self Assessment in the United Kingdom has led the Isle of Man Income Tax Division to review its procedures for granting double taxation relief where a U.K. source of income is involved. (The previous procedure was outlined in PN 61/96.PN

The introduction of self assessment by the U.K. Inland Revenue now creates significant complexities in the management of the Block Claim arrangement, which are out of proportion to the declining number of Manx taxpayers who use it.

The Extra Statutory "Block Claim Arrangement" is terminated with effect from the 6th April 1997. Taxpayers affected will therefore receive a DTA(I) certificate from this Division, showing the amount of Manx tax charged on their U.K. Dividends so that they or their agent can make their own claims for Unilateral Relief direct to the Inland Revenue.

Procedures

1. Taxed U.K. Income:

With effect from the income year ended 5th April 1997, returns received which include taxed U.K. income will be assessed in one of two ways.-

U.K. PERSONAL ALLOWANCES

a) No claim made

Where an individual or their agent does not make a claim to the Inland Revenue, double taxation relief will be given on any U.K. taxed income provided that the relevant certificate or proof of tax paid is supplied in order to support the claim for relief.

b) Claim made

In cases where a claim is made, double taxation relief will be given provisionally in line with the computation submitted to the Inland Revenue. From the income year ended 5th April 1997 the Inland Revenue may not issue an assessment or computation of U.K. tax.

If there are several sources of U.K. income it will be necessary to retain a copy of the U.K. self assessment return made to the Inland Revenue as this may also be needed to help verify the eventual entitlement to double taxation relief.

This Division will continue to accept copies of U.K. certificates P60, P14 etc. as proof of U.K. tax deducted. Where a claim is made, a copy of the final statement from the Inland Revenue will also be required.

Important Change: Whether a claim is made to the U.K. or not, apart from U.K. dividends and debentures, the U.K. income will be aggregated for the purposes of determining the amount of double taxation relief. (See example 1)

2. U.K. Dividend and Debenture Income (incorporating Unilateral Relief

U.K. dividend and debenture income will be assessed on the amount actually received except where U.K. additional higher rate tax has been paid. For Manx computational purposes the dividend and debenture income will be taken as the "top slice" of U.K. income. (See example nos. 2,3 and 4 attached.)

3. Income from a U.K. Property or Trade

It has been the Division's practice to accept the U.K. adjusted figure for income from a U.K. property or trade when including the source in a Manx assessment.

The Division will continue to accept the computation submitted to the Inland Revenue provided that no elements of capital relief inadmissable under Isle of Man rules are included.

During the transitional years for the introduction of the current year basis in the U.K. the Division will require accounts for each accountancy year end as usual.

4. Relief for Maintenance paid under a U.K. Court Order

The concessional practice to allow maintenance paid under a U.K. court order against U.K. liable income to the same extent that it is allowed by the Inland Revenue is no longer practical given the changes within the U.K. tax system.

With effect from the 1997/98 year of assessment the Division will allow maintenance paid under a U.K. court order against U.K. liable income to the extent of that income.

Example One

A single person age 60 is assessable to Manx Income Tax for the year 1997/98 on income from the following sources :-

1) U.K. Tax Payable per Self Assessment Return Form

Average rate of tax = 13.40%

2) Isle of Man tax payable on Total Income:-

3) Tax on Total Income less U.K. Taxed Income

The difference between A and B of £2,000 is more than the U.K. tax paid of £1340.40 and therefore the double tax relief is £1340.40.

If no claim is made, the original average rate of tax (Income £10,000, Tax paid £1260.40) of 12.60% is used to grant double tax relief of £1260.40.

Example Two

A single person age 62 is assessable to Manx Income Tax for the year 1997/98 on income from the following sources :-

1) U.K. Tax Payable on Income Arising in the U.K.

As (a) is less than (b) Section 128(1) limit does not apply - Tax due 3740.40

2) Isle of Man tax payable on Total Income: -

3) Tax on Total Income less U.K. taxed income

4) Calculation of Manx Tax Charged on U.K. Dividends

For the purposes of calculating double tax relief, UK dividends and debentures are charged Net. All other UK income is aggregated and Double Tax Relief is given based on the UK tax paid on that income. (The UK tax charged on the dividends is 1 0,000 @ 20%)

The Double Tax Relief is the lower of :-

Either the UK tax paid of £ 1740.40

Or

The Manx tax charged on the income which is the difference between (A) and (B) £ 2400.00

The Double tax relief is therefore £ 1740.40

Example Three

A married person age 63 is assessable to Manx Income Tax for the year 1997/98 on income from the following sources :-

1) U.K. Tax Payable on Income Arising in the U.K.

Concessionally for Isle of Man Tax purposes, dividends will be taken as the "top slice" of income. Therefore, as there is no higher rate tax paid, dividends of £3200 will be assessed net in the above example. The remaining UK income of £33,000 has suffered UK tax of £5,964, giving an average rate of 18.07%

2) Isle of Man tax payable on Total Income:-

3) Tax on Total Income less UK taxed income

As A minus B (£5,853) is less than the UK tax charged on the UK other income of £5964 and therefore the double tax relief will be £5,853.00.

A DTA 1 will be issued for the U.K. net dividends of £3,200.00.

Example Four

A married person age 62 is assessable to Manx Income Tax for the year 1997/98 on income from the following sources :-

As (b) is less than (a) Section 128(1) limit applies - Tax due £ 9064.00

Concessionally for Isle of Man Tax purposes, dividends will be taken as the "top slice" of income. Therefore Double Tax Relief at the marginal rate will be granted on the net dividends of £ 1,600 (2,000 x 80%) in the above example. The remaining UK dividends of £7,600 will be assessed net.

The UK income of £27,500 has suffered UK tax of £5,964.00, giving an average rate of 21.69%.

3) Tax on Total Income less UK net dividend income that has suffered additional tax at 25%

4) Tax on Total Income less other UK taxed income

4) Tax on Total Income less other UK taxed income

As A minus B (£320.00) is less than the additional tax paid on the UK net dividends of £400.00, the double tax relief will be £320.00.

B minus C (£4973.00) is less than the UK tax charged on the UK other income of £5964.00 and therefore the double tax relief will be £4973.00.

A DTA(1) certificate will be issued for the remaining £7600 UK net dividends.