– As featured in the March edition of Portfolio Magazine.
The Isle of Man’s 2025-26 Budget brings a sense of stability, with measured tax changes that provide some relief to individuals and businesses. A modest increase in personal allowances and a reduction in the higher rate of income tax are positive steps, particularly for owner-managed businesses where personal and business finances are often closely linked. The standard corporate tax rate remains at 0%, reinforcing the island’s commitment to supporting enterprise.
Beyond the headline tax measures, one of the most important considerations for business owners continues to be planning for the future—not just for their business, but for themselves as well. Many family-run and owner-managed businesses face the challenge of ensuring long-term continuity, particularly when key individuals step back from day-to-day operations. This makes succession planning and personal financial security increasingly relevant in the current economic environment.
Some key changes include:
The personal income tax allowance will increase by £250 to £14,750 for individuals and by £500 to £29,500 for jointly assessed couples. While the increase is relatively small, it does provide lower income households with a little extra breathing room before income tax applies.
The higher rate of income tax will fall from 22% to 21%. This will impact higher earners, and while the overall impact will depend on individual circumstances, this represents a gradual easing of the tax burden for some.
The upper earnings limit for Class 1 employees’ NICs will rise from £48,776 to £53,664 per year. This means that employees will pay the standard NIC rate on a greater portion of their earnings which will result in slightly higher contributions for many (almost £500 extra). Employees should factor this extra cost into their personal budget for the coming year.
The tax cap—the maximum annual income tax liability for individuals who elect for capped tax status—will increase from £200,000 to £220,000. While this affects a small group of high-net-worth individuals, it signals the government’s ongoing approach to balancing competitiveness with revenue generation.
The standard corporate tax rate remains at 0%, maintaining the Isle of Man’s competitive position for businesses. However, as in previous years, banks and large retailers remain subject to higher rates. Businesses should continue to monitor international tax developments, as global pressure on low-tax jurisdictions could influence future policy.
The Growing Importance of Succession Planning and Pension Provision
For many owner-managed businesses, tax rates and allowances are only part of the bigger picture. A key issue that continues to surface is succession planning—ensuring a smooth transition when an owner or key decision-maker steps back.
Succession planning is a challenge for many businesses, particularly those that have been family-run for generations. Some owners find that younger family members have chosen different career paths, while others face difficulties in structuring an ownership transition. The lack of clear succession plans can lead to uncertainty, which in turn affects staff, customers, and the long-term viability of the business.
While much focus is placed on ensuring the continuity of the business itself, it is equally important for business owners to plan for their own financial security. Unlike employees, who may have structured workplace pensions, many business owners rely on the eventual sale or transfer of their business as their retirement plan. This can be risky, especially if economic conditions or personal circumstances change unexpectedly.
The Isle of Man’s pension framework allows individuals to make annual contributions of up to £50,000 into a pension, offering a significant opportunity to build a secure financial future. Pension contributions remain a highly tax-efficient way to save, as they benefit from tax relief and allow business owners to gradually accumulate wealth outside of their business. Given the uncertainty around public finances and future tax changes, a well-funded pension provides financial independence and ensures that retirement plans are not solely reliant on the success of the business transition.
Business owners who do not currently have a pension in place should consider starting one as part of their long-term financial strategy. Those who already contribute may wish to review their arrangements to ensure they are maximising the available allowances. A pension not only provides security for the individual but can also ease the succession process, as it reduces the pressure to extract large sums from the business when an owner decides to step away.
Final Thoughts
The 2025-26 Budget provides some welcome stability in tax policy, but it also highlights the need for long-term planning. While there are some incremental tax improvements for individuals and businesses, the wider financial picture remains a concern.
Government reserves continue to be drawn upon significantly, with £110.6 million allocated this year. While the aim to reduce reliance on reserves is a positive goal, it is highly ambitious and has yet to be achieved in recent history. This ongoing backdrop reinforces the need for businesses—and their owners—to take control of their own financial futures. Just as government finances require long-term sustainability, so too do the businesses that form the backbone of the local economy.
For owner-managed businesses, succession planning is no longer just about finding the right person to take over—it is also about securing financial stability for the owner. A well-thought-out approach that considers both business continuity planning and personal finances will provide greater certainty and peace of mind.
Whether a business is passed on to the next generation, sold to employees, or transitioned to an external buyer, having a structured plan in place ensures that the process is smooth, tax-efficient, and aligned with personal financial goals. As the economic landscape evolves, businesses and their owners who take a proactive approach will be in the strongest position to adapt and thrive.
In the end, the best succession plan is one that doesn’t just secure the future of the business—it also secures the financial future of the people who built it.
Share this post
