In this article we discuss the more popular tax deductions available and how they can apply to you, some of them you may be aware of, some a little more obscure.
A deduction reduces either the amount of income liable to tax or your actual tax liability. Sounds the same I hear you say…. almost but not quite, the table below shows the subtle difference (deductions are highlighted yellow)
A private pension premium reduces your total earnings and the balance is then taxed.
Mortgage interest does not follow the same principle and reduces the tax you owe.
Now for some specifics about the tax deductions available to you
Tax Deductions – Pension Contributions
If you contribute to an approved personal pension scheme you can qualify for relief on these contributions up to a limit of £50,000 (this includes both personal and any employer related contributions)
There are conditions that you must be in receipt of income from employment or self-employment. If you are not employed in anyway and still receive income (dividends/interest for example) then you may be able to still claim tax deductions up to £3,600
Mortgage and loan relief
If you have a loan (including hire purchase agreements) or a mortgage with a lender who is based in the Isle of Man (there are exceptions and you can contact the tax office to discuss individual circumstances) then you can claim the interest element of this.
However, the maximum amount you can claim is limited to £5,000 (double for jointly assessed couples). A twist here is that tax deductions are restricted to 10% of the interest. So the maximum deduction available for this is £500 (£5,000 x 10%).
Charitable donations made to a registered charity provided they are more than £100 are fully deductible up to a limit of £7,000 for total donations.
A charitable deed of covenant can also be made, and this can exceed the £7,000 per annum limit (can also be less, no upper or lower limit).
However, there are strict criteria for a deed of covenant, and this is that they:
- Are irrevocable
- No monetary consideration is received be it cash or otherwise
- Period of covenant exceeds three years.
Private medical insurance
Provided you are over the age of 60 and have an eligible private medical insurance contract in place you can claim a tax deduction up to a maximum of £1,800, but as with mortgage and loans this is restricted to 10% of the premiums.
See https://services.gov.im/treasury/incometax/services/pdfs/gn14-revised-v111215.pdf for more specific details on the types of allowable policies and what they can cover.
Tools and Clothing
This is one that many people are not aware of that they can claim.
Provided the clothing that you claim for is for use solely in execution of your duties then it can be claimed. If the item purchased could be used for something else, then it will not be allowable. For example, a suit whilst worn at work could serve another purpose so is not allowable.
If you pay subscription fees to a professional body that is relevant to your employment, then this can also be fully claimed.
Any fees payable to trade unions are not allowed.
Visit https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/individuals/residents/rates-and-allowances/ for full details on the rates, allowances and deductions available.
How can Invicta help?
At Invicta we understand how all tax deductions work and also in many cases we can identify a tax deductions you may not have already thought about.
We act on your behalf, removing the stress and worry associated with wondering if you have claimed all tax deductions your entitled to and even in some cases realising a deduction doesn’t apply and deal with any tax office related correspondence.
Call Invicta Accounting on 01624 672358 or emails us at firstname.lastname@example.org to discuss your requirement.
All initial consultations are free and there is no obligation!
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