Taxation of Isle of Man Companies from April 2006Written by The Chesterfield Group
At present time a company incorporated in Isle of Man, owned by non-residents and which complies with other statutory requirements, is not liable to Isle of Man taxation. Whilst locally trading companies pay tax at 18%, a qualifying offshore company pays a flat annual tax of £475 or £1,000. The Isle of Man is however required to comply with E.U. Code of Conduct on Business Taxation and other international initiatives designed to eliminate discrimination between taxpayers. This means, essentially, that tax treatment of local and offshore companies should be same. The Island decided some time ago that it would meet its obligations by introducing a zero rate of taxation for all companies except those engaged in certain finance sector activities and Government has now issued a consultation paper outlining how it is proposed that new system will operate. From April 2006 distinction between offshore and locally resident companies will disappear and companies will be classified as distributing or non-distributing. A distributing company will be one of following, •Where whole of distributable profit has been charged to tax at rate of 10% or •Where company has distributed a specified minimum of its distributable profit, expected to be 60% for a trading company and 100% for an investment company or •A company owned wholly by non- residents, regardless of what percentage of profit is actually distributed.
| | Buy to Let Property InvestmentWritten by The Chesterfield Group
In recent years buy to let has been a popular way of investing in residential property. Stock markets are out of favour with many investors who have seen values of their portfolios, endowment policies and pension funds shrink, whereas property has generally continued to rise in value. Interest rates are at historically low levels and mortgage finance is readily available on competitive terms from major banks and building societies. This brings property investment within means of more investors than ever before. In these notes we will take example of a foreign domiciled person, a non-resident of United Kingdom, buying a property in London with benefit of loan finance, but general principles can apply to many other markets.Buying to let pre-supposes that there is a tenant willing to rent premises and provide cash flow, which will service borrowing and is only one of factors, which need to be taken into account before entering into a commitment. These can be summarised under three main headings. The Property It has been said that three most important matters to take into account when buying property are location, location and location and this maxim holds just as true for investment property, •It should be situate in an area where tenants are looking to rent •It should be attractive to tenants and be, for example, an apartment, penthouse or a period or modern house. Listed buildings or converted churches may have their appeal but it is to a narrower market •It should be in, or brought into, good condition. •It should be in an area where property is in demand, making a resale easier in future. The Finance For right property mortgages are available both onshore and offshore, at competitive rates, from many of major lending institutions and terms can be negotiated. It is possible to obtain a loan on a repayment or interest only basis and for an agreed period. Whilst higher percentages are sometimes available we suggest not borrowing more than say 70% of valuation to avoid a cash flow crisis if interest rates rise and to allow for periods when property is vacant. The lender will also be looking for a monthly rent of order of 130% of monthly repayment. Taxation In United Kingdom investor will need to take into account three main direct taxes, •Income tax, which is payable on rents. Loan interest and costs of repairs and maintenance are deductible •Capital gains tax, which is not payable by a non- resident on sale of a property held only as an investment and not as part of a trade or business. •Inheritance tax, which is charged at 40% on amount by which aggregate value of chargeable assets exceeds a threshold, currently £263,000.
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