The UK Chancellor’s Autumn Budget 2025 introduced a series of tax raising measures aimed at stabilising public finances. While the Isle of Man sets its own direct taxes, our long-standing Customs and Excise Agreement (1979) with the UK means many indirect taxes (known as “common duties”) are mirrored here and pooled under the Final Expenditure Revenue Sharing Arrangement (FERSA).
So, when Westminster changes excise duties or VAT rules, those changes usually flow through to Manx consumers and businesses.
In this article, we explore the key measures from the UK Budget that will affect Isle of Man residents, either automatically under FERSA, or indirectly through UK property ownership and employment.
Direct Taxes
While the Isle of Man controls its own income tax and National Insurance, many residents have financial ties to the UK through property ownership, employment, or pensions. Key changes include:
Class 2 National Insurance Contributions (NICs) Overseas Restrictions
From April 2026, access to the cheapest voluntary Class 2 NICs for individuals living outside the UK will end.
- Class 2 NICs are currently £3.50 per week and are typically paid by eligible Manx residents to increase UK State Pension entitlement.
- While the Budget did not restrict access to Class 3 contributions, these remain significantly more expensive at £17.75 per week - over five times the Class 2 rate. Nevertheless, if you’re eligible, it may still be worth topping up your record to reach 35 qualifying years, which secures entitlement to the full UK State Pension (currently £241.30 per week from April 2026). Even at the higher Class 3 rate, the long-term benefit can outweigh the cost.
The residency requirement for those wishing to make voluntary NICs to increase their UK State pension entitlement has also been raised to 10 years – meaning that you’ll have needed to have worked in the UK and made 10 qualifying years of NICs before being entitled to pay voluntary NICs from overseas.
Rental Income Tax
From April 2027, if you own UK rental property, your tax bill will rise by 2%.
- The basic rate has increased from 20% to 22%
- Higher rate from 40% to 42%
- And the additional rate: from 45% to 47%
Salary Sacrifice for Pensions
From April 2029, the NICs exemption on salary-sacrificed pension contributions will be capped at £2,000 per year. Contributions above this will attract employee and employer NICs. As we flagged in our pre-budget article - if you work for a UK employer and use salary sacrifice, you may wish to review your pension strategy accordingly.
High-Value Property Surcharge
A new High Value Council Tax Surcharge applies from April 2028 to English homes worth £2 million or more. Charges start at £2,500 per year, rising to £7,500 for properties above £5 million. This will affect Manx residents with high-value UK homes.
Indirect Taxes - Automatic under FERSA
The Isle of Man mirrors UK rates and rules for VAT, customs duty, and excise duties on alcohol, tobacco, fuel, and other certain levies. Here’s what’s changing:
Alcohol Duty
From February 2026, alcohol duties will rise in line with the Retail Price Index (RPI). This means higher prices for beer, wine, and spirits in both the UK and Isle of Man. Hospitality businesses and consumers on the island should plan for incremental cost increases.
Tobacco and Vaping Products
Tobacco duty will continue to rise by RPI + 2%, and a new excise duty on vaping liquids (£2.20 per 10ml) will apply from October 2026. These changes will be mirrored locally, impacting retailers and consumers alike.
Fuel Duty
The temporary 5p cut in fuel duty remains until August 2026, after which rates will gradually return to pre-2022 levels by March 2027. Expect pump prices to rise in stages, affecting household budgets and transport costs.
Sugar Tax Expansion
The Soft Drinks Industry Levy will tighten its threshold to 4.5g sugar per 100ml and extend to milk-based drinks and lattes from January 2028. This will apply in the Isle of Man, influencing café pricing and consumer choices.
Other Changes of Note
UK State Pension
For Isle of Man residents eligible for the full UK State Pension, payments will rise to £241.30 per week from April 2026. However, frozen UK tax thresholds mean “fiscal drag” for those with additional UK taxable income, such as UK rental income, because more of that income will fall into the basic rate band. Although the IoM–UK Double Taxation Agreement ensures you won’t be taxed twice, UK tax on UK-based income could still increase over time.
Gambling Duties
The Budget also introduced sharp increases to remote gambling taxes. From April 2026, the Remote Gaming Duty on online casino-style games will rise from 21% to 40%, and from April 2027, a new Remote Betting Duty of 25% will apply to online sports betting (excluding horseracing, which remains at 15%).
While these changes do not automatically apply in the Isle of Man under the Customs & Excise Agreement, they will affect IoM-based operators serving UK customers and could lead to less generous bonuses or higher costs for players using UK-licensed platforms.
Market Reaction
Markets had largely priced in the worst-case scenario ahead of the Budget, so there was no negative surprise on the day. Sterling rose slightly against the dollar, the FTSE All Share Index finished up 0.87%, and UK government 10-year borrowing costs fell by just over 2%.
Planning Ahead
For Isle of Man residents, the implications are clear:
- UK property owners face higher rental income tax and new council tax surcharges.
- Cross-border workers should review pension arrangements and NICs strategy.
- Indirect taxes on fuel, alcohol, tobacco, and sugary drinks will rise here under FERSA.
At Edgewater Associates, we help clients navigate these changes - whether it’s optimising pension contributions, or planning for evolving tax landscapes. If you’d like tailored advice, contact our team today.
This article reflects our own interpretation of the key measures included in the UK budget. It is intended solely for general information and discussion purposes and should not be regarded as financial, legal, or professional advice. We are not tax advisers. Clients should seek professional tax advice to understand any implications on their personal circumstances.
