Idyllic island tax haven lures investors

PUBLISHED : Wednesday, 14 July, 2010, 12:00am
UPDATED : Wednesday, 14 July, 2010, 12:00am

The Isle of Man may be small - little more than a speck in the Irish Sea - but it's a magnet for the rich and famous. Jeremy Clarkson, a journalist specialising in motoring, tops the bill of high-net-worth individuals who call 'Mann' home, and it's a fair bet the scenery is not the main attraction. For this tiny isle of just 48 kilometres in length, covering an area of only 572 square kilometres, is one of the most tax-friendly jurisdictions on earth.

The Isle of Man is a self-governing British Crown dependency. It has a large and sophisticated financial services centre best known for offering low or zero rates of direct taxation for individuals and companies.

For residents, this means no capital gains, wealth or inheritance taxes - just a straightforward income tax levy - and no stamp duty on property purchases.

It's also known as a very private island. With a population of only 80,000, the property market is extremely limited. Yet the Isle of Man held its own during the financial crisis, according to a report by Chrystals estate agency, faring better than any other market in the region.

The island's average property price decreased marginally last year from GBP281,000 (HK$3.3 million) to GBP275,000, a fall of 1.75 per cent year on year, according to Chrystals chairman Shane Magee. If apartments were excluded from the study, the average price actually increased 1.25 per cent to GBP296,000.

'For continuity purposes, our report historically excludes sales of more than GBP1million as these were considered exceptional. Current trends have seen a considerable volume of these sales and, if included, would see an average house price in excess of GBP370,000,' he says.

Magee says a new tax rate introduced in Britain this year is driving buyers to the Isle of Man, especially at the upper end. 'These buyers look at numerous jurisdictions and we find ourselves competing against Switzerland, Jersey and Monaco.' It's not just about low taxes, he asserts. 'The advantage the Isle of Man holds is that we have a vast expanse of scenery, the population speaks English and the cost of living is affordable. Buyers I sold a substantial property to last year said if the tax advantages disappeared tomorrow, they would not wish to return to Britain. The island's beauty and wonderful lifestyle have a magnetic hold on its residents. Once here, few wish to leave.'

The island has the varied scenery of the British Isles squeezed into 227 square miles, with the convenience of being only 60 minutes by air from London, 40 minutes from Manchester and 30 minutes from Dublin. 'The lifestyle can generally be regarded as relaxed, with a safe environment for family living. The tax cap of GBP115,000 per annum per individual and a lack of capital taxes are reasons aplenty to attract new residents to the Isle of Man, but those in search of a better lifestyle with an easier pace are often found house hunting from adjacent jurisdictions,' Magee says.

'The island has little serious crime, with a good health service and high standard of education. It cannot generally be regarded as glitzy, but offers a natural environment where those who enjoy outdoor activities, such as coastal and hill walking, sailing, fishing and golf, can be spoilt for choice. One of the great benefits of living in a small place is ease of communication.'

Access to government decision-makers is another perk afforded to high-net-worth individuals considering a move there, Magee says.

'I have had new residents at short notice meet the minister for the Department of Economic Development over lunch. He has been able to answer questions that have helped them decide the Isle of Man is a can-do place and the location to move to, and bring their business interests with them.'

But you don't have to be a millionaire - or even a British citizen - to buy there. Graham Wilson, director of Cowley Groves, says anyone can buy on the island. 'But to take up residency, when they don't hold a British passport, they would need to go through immigration,' he adds.

Cowley Groves notes renewed interest by investment buyers in April. Wilson says British media reports hinting at price rises have spurred on many of these investors, who are keen to buy as close to the bottom of the market as possible.

'The rental market remains healthy, which also makes this an attractive option. While the short-term benefits of four and five years ago are no longer likely, long-term investments in the property market have always historically proved lucrative,' he says.

Although Hong Kong and mainland investors seem to have little interest in the Isle of Man, Wilson feels it is a destination they should consider.

He says: 'Sales are slightly down [about 16 per cent] on the Isle of Man since the global crisis, but values have held up. While they haven't increased over the last two years, they haven't decreased either, thankfully. There is still good capital appreciation and a very healthy rental market, which is important to investors. Add to that a good stable government, good yields and no capital gains tax, stamp duty or death duty.'