QROPS – Isle of Man Tax Changes


The Isle of Man parliament, Tynwald, will consider today changes to its pension regulations concerning income tax for non-Isle of Man residents. The 3 day session was scheduled to begin 19th October 2010 and the pension amendments are widely believed to be enacted. The Isle of Man had recently increased their levels of income tax from 18% to 20% which applies to both Isle of Man residents and non-residents. The new amendments to the pension regulations should allow a zero rate of income tax to be applied to QROPS pension transfers for non-IOM residents.

The new regulations will allow the Isle of Man to become more competitive with jurisdictions such as Guernsey who have applied a zero-percent tax rate to non-locals with the rationale being that the pensioner will have to pay some income tax in the country in which he is residing. It is unclear at the moment whether HMRC will classify the amended pensions as QROPS and there will likely be a laggard effect of several months before the changes to the tax law take place.

4/11/2010 Update: The Income Tax (Pension) (Temporary Taxation) Order 2010 became effective as of October 22nd. Section 50B and is effective for international corporate and personal pension schemes, available to non-residents of the Island.

50C schemes are open to residents and non-residents. QROPS under the 50c scheme mean that it creates a new TEE type of pension scheme:

• There is no tax relief for contributions (T)
• Tax exemption (E) on the investment return in the scheme, and
• Tax exemption (E), ie no tax deduction, on authorised benefits paid out under the scheme rules – and this applies equally to benefits paid as pensions, as lump sums, and on death.

So, the QROPS schemes transferred to these tax rules in the Isle of Man mean that a pension will be paid gross with no tax deducted. A 30% lump sum can be taken upfront, zero inheritance tax will be imposed so the whole pension will be transferred to your partner or children and you will have the flexibility to determine the nature of your drawdown.

Even better than that the new rules only stipulate that the member use 70% of his pension pot to provide for a pension. So, if someone has a £200,000 pot, only £140,000 has to be used to provide a pension income. So, if you have an initial pot of £200,000 that you invest in low risk funds which grow at 5% per year for 20 years, then that will give a £530,000 pension pot. But, only £140,000 needs to be used as a pension, meaning that the member has £390,000 which he can take as a lump sum.

So, 100% of the investment return + 30% of the original can be taken as a lump sum, giving a massive incentive to enter this type of a QROPS scheme rather than a SIPP or Guernsey QROPS.

These Isle of Man 50C QROPS schemes have redefined the pension transfer possibilities for people who have worked in the UK. Contact the number above to find out more.

For more information, send an email to qrops@credendaassociates.com

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