The Isle of Man and other tax-efficient jurisdictions have come under heavy fire this year. Neil Tague travelled to the island to meet Manx businesses and found a business community ready to come out fighting.
Maybe it was the Obama effect.
Certainly one suspects that Alistair Darling, who rarely seems certain of very much, wouldn’t have said as he did in November 2008 that the government needed to “take a long hard look at the relationship with the Isle of Man, a tax haven sitting in the Irish Sea” were it not for the US president’s declaration of war against his country’s favoured tax boltholes.
Darling’s comment didn’t go down well on the island. After all, Darling and his boss and predecessor as Chancellor, Gordon Brown, have both talked at length during the last decade about their making the City of London into Europe’s most business-friendly location. Whither talk of “light touch” regulation now the political sands have shifted? The rules of engagement have changed and those hailed as business visionaries a coup-le of years ago are lambasted as amoral cheats now that the cupboard’s a bit barer.
John Spellman, director of Isle of Man Finance, says: “There is a sense of frustration. We understand the need for cooperation and the need for a ‘new world order’ and have been happy to play our part. Looking at societal and infrastructure matters, we’re very different from the secretive and evasive tax havens, but everyone gets lumped in together.”
The storm has calmed a little since then, largely because of April’s announcement by the Organisation for Economic Co-operation and Development (OECD) of its White List, which put the Isle of Man in the clear.
Nick Verardi, partner at Manx law firm Dickinson Cruickshank, says: “Before the G20, a lot of people were nervous about what would happen, especially in the wake of Alistair Darling’s attack. But the announcement of the White List has justified the hard work put in by the Isle of Man government over the last ten years.
“The island has pushed ahead of similar jurisdictions in pressing for tax agreements with other countries and took something of a risk in doing that. We already had agreements under our belts, rather than having to run round at the last minute – jurisdictions may find it hard to get off the Grey or Black lists now.”
Philip Dearden, a partner at accountancy firm PKF’s Douglas office, says: “It was like getting an exam result - you’ve worked hard and know you deserve it but you don’t relax until you have confirmation. Now we can move forward with confidence that investors know they have a respectable future here.”
Verardi says: “We have to be transparent, cooperative and a proper international citizen. This is only the beginning, I suspect international tax standards will change and we have to ensure we’re up there with the best.”
The island has become more aggressive in seeking to bring in wealth and jobs in recent years. In the spring of 2006 it upped its game in competition with the Channel Island jurisdictions, by introducing a cap of £100,000 on income tax payable per year and cutting corporation tax to zero. “Freedom to flourish” is the government’s mantra. Spellman says: “We can offer low taxes because of efficient public services. We’re a small, manageable economy.”
The Isle of Man’s recent strategy has been to build on several key sectors: ship management; e-business; online gaming; communications; film; precision manufacturing; and, of course, financial services. DTI chief executive Chris Corlett says: “The quality of businesses we attract here is high, and the range is much more diverse than people realise.”
Corlett and others stress time and again that the island is by no means some sort of Cayman Islands without the sun. And it’s true that there are a lot of people employed in what you’d call proper jobs at real businesses. Real businesses with canteens, toilets and the rest of it, rather than an office door with a lot of letter boxes and a long list of company names on a brass plaque. And there are some great business stories, as our case studies later show.
But the tax incentives must rank high on the list of incoming investors – no one’s coming for the weather and, although there’s a cultural offering, it’s early days at best. The fact that almost every single person interviewed for this feature went out of their way to extol the virtues of what the island’s got to offer in lifestyle terms was slightly disturbing. But the DTI’s Corlett won’t hear a word of it.
“Would the international investors we’re working with even mention tax?” he says. “They come here for the labour, the relationship with government and EU market access. They are far more important factors.”
That may be the case for Far Eastern betting businesses looking for a European toehold. But what about relatively local businesses or individuals? North West entrepreneurs weren’t exactly muted in their reaction to the 50 per cent tax rate for high earners, announced in April’s Budget. It’s been suggested that relocations might be the order of the day.
David Hudson, head of private client at SMP Partners on the island, says: “Given the perilous state of the UK economy it is perhaps not surprising that many see the 50 per cent rate as the tip of the iceberg and an exodus of high earners from the UK seems increasingly likely.
“Three years on from the tax cap and corporation tax changes, and now enjoying White List status, the Isle of Man is well positioned to benefit from the increasing eagerness of the high earner to retain a larger share of their income and trade from a low-cost, flexible jurisdiction.”
But Verardi’s not so sure: “There’s no evidence of that yet, although it’s early days of course. The Budget probably will help the island to some extent though and there’s definitely been an upturn since 2006 in entrepreneurs coming to live on the island, if not set up businesses. I’ve noticed more houses in the £1.8m-plus bracket, so the developers are obviously confident.”
The domestic property market is still active, certainly in comparison to the moribund mainland market. One of the most active names around is Dandara, which for a time burned very brightly on the Manchester residential scheme, building the well-received The Lock scheme and the not so well-received St George’s Island, among others. Dandara made a high-profile hiring in Apprentice runner-up Kristina Grimes, who has now departed, and work is progressing slowly on the Chapel Wharf site next to the Lowry Hotel, surrounded as it is by hoardings proclaiming somewhat emptily: “The best development in Manchester.”
No such problems on the Isle of Man, where Dandara has ten schemes up and down the island, in Douglas, Ramsey, Peel and Onchan, both apartment schemes and houses built under its heritage brand. There are also new players in the market.
One is Loxley Land & Property, a Sheffield-based property developer and investor. The firm’s Eldon Stevens, previously of apartment specialist Velocity Estates, says: “One of our directors chose to move to the island in spring 2008 – we’re a northern business and it’s handier in that sense than Jersey or Guernsey.
“But what we found was that there was a gap in the market for a slightly younger high net worth individual. It’s a great place, with a lot of industry and a lot of wealth but we felt there’s a niche for a real top-end product. We’re now working on four properties and are in the market to acquire more sites. We see a lot of longevity in this market.”
Stevens thinks relocations are in the air, while the indigenous market may throw up some custom for Loxley’s product, which will typically be offered at between £3m and £6m. “I’d class our typical client as a hard-working, gritty, successful northern businessman. But there are already guys on the island who run really successful businesses and it’s becoming a more and more popular business destination,” he says.
Where queries may come from is a hot topic on the island, with treasury minister Allan Bell on the record as saying the upcoming entrepreneur is the target, rather than the fairly well-to-do middle manager – those who will make a contribution rather than eventually become a burden.
Accountancy firm PKF is anticipating an increase in enquiries. On 30 June it will hold a seminar in Liverpool on ideas to save on tax, at which most of the audience will be intermediaries in the shape of lawyers, bankers and financial advisers who advise high net worth individuals.
Partner Jane Jackson says: “When taper relief went from 10 to 18 per cent there were grumblings, but you got the feeling most people would suffer 18 per cent. But with a 50 per cent rate, the tax take is bigger than an individual’s, with other contributions taken into account. People aren’t looking yet, but when things start to pick up and they find themselves paying more, they’ll look at off-shore structures.
“There are still benefits to being non-domicile, even with all the government’s talk about stopping it. The world’s a smaller place now.”
So what does the island offer? Its businesses are almost all evangelical about the Isle of Man: it’s safe, it has a good education system, it’s easy to get around and there’s great quality of life.
They almost all talk about how good it is to have a proactive government that’s in touch with the business community – several company directors I spoke to said they could pick up the phone to a senior minister with a query and speak directly to a senior official. It goes without saying the UK is far too big for such sensitive government, but is the Manchester city region pushing for greater autonomy on major projects so different in principal to this point?
Andy Bridson, sales and marketing director of Manx Telecom, sums up why Manx businesses are generally quite content with their lot. “It’s a partnership approach. Companies know they’ll get the support of a government that is easy to contact and easy to work with. There’s a lot to be said for that.”
Also in: June 2009
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The tide of euphoria that swept the world on the election of Barack Obama was tinged with a little apprehension on a small island off the coast of North West England.
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Peter Cowgill
Is this the hardest-working individual in North West business? Michael Taylor catches up with a man sitting atop two companies thinking clearly in the current climate.