Unlike existing pension products available on the Isle of Man, this new pension product would enable non-IoM residents to avoid having to pay 20% tax on income – as is already the case with non-resident pension schemes in Guernsey and certain other jurisdictions that are popular with QROPS providers.
Such jurisdictions offer the zero-percent tax rate to non-locals on the understanding that some tax is ultimately paid to the country in which the relevant pensioner currently resides. Isle of Man QROPS administrators have been lobbying persistently for this tax – which in the last budget was raised from 18% – to be removed for non-residents, in order to be more competitive.
Tynwald will formally consider the new pension structure at its next scheduled three-day session, which begins on 19 October, IoM QROPS industry sources told International Adviser. Because the new pension is constructed as an amendment to existing pension regulations, it could be available for use by pension administrators within days of Tynwald’s approval, which is widely expected, these sources added.
It was not clear at presstime whether HM Revenue & Customs will classify the new pension product as a QROPS, but if it does, there would be a time lag of several weeks to months before it would receive this designation.
Government officials declined to comment, citing Tynwald regulations that require members to be fully informed of such matters before other parties are briefed.
News of the changes to IoM tax legislation comes as Jersey officials continue to work on changes to that island’s pension’s legislation that are intended to enable it to offer QROPS to non-Jersey residents for the first time.
QROPS, or qualifying recognised overseas pension schemes, are a type of international pension scheme located outside Britain that HMRC deems acceptable for former UK residents to transfer their UK pensions to. Guernsey dominates this market, and sources there say it has benefited from a surge in transfers over the last 12 months.
In addition to now being taxed at 20%, the same rate as Isle of Man residents’ pensions, the pension income of non-resident Brits living outside the UK also no longer enjoy a non-resident’s allowance of £2,120, which was abolished in the last budget. The 20% tax has been a thorn in the side of the Isle of Man’s QROPS industry, which evolved after the UK overhauled its pensions legislation in 2006, now known as A Day.
