An increase in Personal Allowances was easily the most significant and wide-reaching tax measure announced in yesterday’s 2026/27 Budget speech. Last year’s modest £250 rise (£500 for jointly assessed couples) was the first for 4 years and whilst the initial plan had been for a more substantial £750 increase this year the new Treasury Minister, Chris Thomas, unveiled a far more radical £2,250 extension to the tax-free banding (doubling to £4,500 for jointly assessed couples).
This means tax savings of up to £472.50 per annum for individually assessed taxpayers and up to £945 for jointly assessed couples, a figure that will be added to by National Insurance Contributions (“NICs”) savings, particularly for lower and middle earning employees.
Whilst not quite the kind of “October surprise” we see from time-to-time ahead of a US presidential election – the fact that an increase was to be announced had been well trailed - the size of the increase is hugely out of keeping with the “fiscal drag” effect of recent Budgets.
On the other hand, the fact that Mr Thomas’s Budget is the first one in 3 years at which no change to the top rate of income tax has been announced perhaps means that we ought to consider the 21% rate as the “new normal”. Those with good memories will recall that the increase from 20% to 22%, which took effect from 6 April 2024, was described as a temporary measure ahead of the introduction of a “healthcare levy”. Last year’s reduction to a 21% headline rate came in the context of a continued appetite to pursue such a levy; however, the response to the subsequent consultation exercise has seen these plans shelved, at least for the time being. As such, we are left with a 21% headline rate which appears here to stay.
Virtually every other aspect of the tax system has remained unchanged, in particular no other adjustments have been made to tax rates and thresholds, with “normal” uplifts made to the various NIC thresholds (and no tweaks to rates).
The maximum income tax liability for those electing to be “tax-capped” has also remained static, at £220,000 per annum (£440,000 for jointly assessed couples) with the Budget speech containing no reference to the Treasury review that was cited at last year’s Budget as a reason as to why consideration ought to be given to tying access to the tax cap to some level of local investment in the Island.
Finally, it is worth mentioning two items that Mr Thomas referred to as offering context for his Budget.
Firstly, that this Budget is the first to factor in receipts from the Isle of Man’s “Domestic Top-up Tax” (“DTUT”), the main plank of the Island’s response to the OECD’s global minimum tax rate initiative (commonly referred to as “Pillar 2”). The Treasury Minister advised that the first receipts of DTUT are expected in March 2027, with budgeted additional tax revenue in 2026/27 of £31m and then an estimated £35m annually thereafter.
Secondly, mention was made of the need to update the Island’s corporate income tax regime “to ensure that it is fit for purpose in the context of the renewable energy sector”. We await more information as to what this might mean in due course . . .
Further details in relation to the tax and NIC aspects of the Budget can be found here and the transcript of the Treasury Minister’s speech can be found here.
If you have any questions in relation to the 2026 Isle of Man Budget, or any other tax matter, please do not hesitate to contact us.
