Isle of Man Budget Update 2025

The 2025/26 Budget speech sparked lively debate in Tynwald, much of which centred on the continued use of transfers from reserves as well as the process for setting the Budget.

From a tax perspective, the main change announced by Treasury Minister Dr Alex Allinson MHK was the reduction in the top rate of income tax, from 22% to 21%, meaning the Island will have had three different “headline” rates in as many years (last year’s Budget seeing the rate increased from 20%). This rate cut, combined with the first increase in Personal Allowances in four years, will see income tax liabilities decrease for many.

However, the increase in Personal Allowances is a very modest one (£250 for single persons and £500 for jointly assessed couples) and, for wage earners, reduced income tax liabilities will either partially or wholly be offset by the changes announced to Class 1 employees’ National Insurance Contributions (“NICs”). This is because the upper earnings level (i.e. the amount up to which Class 1 employees’ NICs is payable on earnings at a rate of 11%) is set to increase from £48,776 per annum to £53,664 per annum with effect from 6 April 2025. Whilst the lower earnings level (ie the amount below which earnings are not subject to Class 1 employees’ NICs at all) is also set to increase, this is only by £416 per annum, meaning those earning in excess of the new upper earnings limit will pay nearly £492 per annum more.

The rate of Class 1 employees’ NICs applicable to earnings above the upper earnings level will remain at 1% and the rates and thresholds applicable to Class 1 employers’ NICs will stay largely untouched.

Also increased was the maximum income tax liability for those electing to be “tax-capped” with effect from the 2025/26 tax year. This amount had remained stable at £200,000 per annum (for single persons) since the 2020/21 tax year but will increase to £220,000 from April (£440,000 for jointly assessed couples). This change does not affect the amount payable by those who have elected into the regime prior to the commencement of the 2025/26 tax year

The tax cap has been the subject of on-and-off political scrutiny for the last few years and reference was made in the Budget speech to a newly published Treasury review of its effectiveness. The review appears to conclude that retention of the tax cap regime is considered desirable albeit that consideration is likely to be given to “tying the Tax Cap (and indeed other policies targeting HNWIs) to some level of local investment in the Island”. A link to this review can be found here.

Finally, it should be noted that the “healthcare levy” first mooted this time last year (indeed last year’s 2% increase to the top rate of income tax was described as a temporary measure whilst the implementation of such a levy was given further consideration) remains on the agenda, with the Government confirming that a consultation will be launched later this year.

Further details in relation to the Budget can be found here and the Treasury Minister’s Budget speech can be found here.

If you have any questions in relation to the 2025 Isle of Man Budget, or any other tax matter, please do not hesitate to contact us.