Analysis: Could the next Budget leave you with more take-home pay?

Treasury modelling and recent remarks in Tynwald offer clues about a potential rise in the personal tax allowance

The annual Isle of Man Budget is always a tightly guarded secret until Budget Day in February. Hints are rarely dropped in advance, if ever.

Yet this week, comments made by the chief minister in Tynwald have pointed to a ‘substantial’ rise in the personal income tax allowance. While no official figures have been confirmed, Treasury’s own calculations allow us to make an educated prediction about how much more take-home pay could be heading into workers’ pockets come April 2026.

“£10 million”

Much of the speculation stems from this week’s Tynwald sitting, where Alfred Cannan hinted at a government intention to inject around £10 million into the economy via the tax system.

He suggested this could be a more efficient way to support households and business than existing grants and schemes, potentially saving the government even more - perhaps by £20 to £30 million - by reducing the need for additional interventions.

This £10 million figure is key. If government is planning to “spend” this much on tax relief, how far will it stretch the personal tax allowance?

Treasury’s calculations

To answer that, we can turn to figures released in a report from 2024 by the Income Tax Division - which provided an insight into the mechanics of the Island’s tax policy.

It reveals that a £290 increase in the personal tax allowance would reduce government revenue by £2.94 million. From this, we can deduce the underlying cost: for every £1 increase in the personal allowance, Treasury forgoes approximately £10,137 in revenue.

Now, if we connect the dots - and assume the government is indeed budgeting £10 million for this allowance increase, the calculation becomes relatively straightforward:

£10 million (CM’s budget) ÷ £10,137 (cost per £1 increase) = £986.58

Rounding this to a politically palatable figure, our analysis suggests the personal allowance is highly likely to increase by £1,000.

Prediction: £15,750

If that proves accurate, the personal allowance – which currently stands at £14,750 for the 2025/26 tax year, could jump to £15,750 from April 2026.

What could this mean for your pay packet?

An increase of this size would have a tangible impact on the take-home pay of thousands of Manx workers. Here’s a breakdown of what it could mean in practice:

For every £1,000 increase in the allowance, a taxpayer essentially gets to keep that £1,000 without paying income tax on it.

• For someone on the standard 10 percent income tax rate: a £1,000 allowance increase means an extra £100 per year in their pocket.
• For someone on the higher 21 percent income tax rate: a £1,000 allowance increase means an extra £210 per year in their pocket.

Who would this benefit most?

Personal allowance increases are often described as "progressive", as they tend to benefit lower and middle-income earners the most.

Many part-time workers or those on lower wages could be taken out of the tax system entirely, allowing them to keep all of their earnings. Middle earners would see a modest but noticeable boost to their take-home pay.

While higher earners receive the largest cash benefit - due to the 21 percent rate - this represents a smaller proportion of their overall income compared to those on lower salaries.

It’s important to remember that any £10 million investment in the personal allowance could be offset elsewhere in the budget. In previous years, increases in the National Insurance Upper Earnings Limit have been used to claw back revenue from higher earners, for example.

However, what we know is the Economic Policy Review Committee said last year that personal allowances had "stagnated" under the current administration, urging the government to adopt a "strategic approach" to increasing allowances to support the "financial wellbeing of residents and attract people to work and live in the Isle of Man".

Naturally, plans could still change between now and Budget Day, but based on the hints made thus far, it could be a likely outcome when the Pink Book is finally published.