QROPS Isle of Man 50c Tax Changes
QROPS pension transfers for British expats and 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-Isle of Man 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.
Isle of Man 50c Tax Changes
50C schemes are open to Isle of Man residents and non-residents. QROPS under the Isle of Man 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.
Isle of Man 50c. Lump Sum Allowance
Even better than that the new Isle of Man 50c 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. The advantage is that this lump sum is now out of pension rules, so you can use it to invest in another tax-free investment portfolio or to purchase property.
So, 100% of the investment return + 30% of the original pension pot can be taken as a lump sum, giving a massive incentive to enter this Isle of Man 50c QROPS scheme rather than a UK SIPP or Guernsey QROPS.
When can I take my lump sum withdrawals from the QROPS?
As long as you are 55 and have lived abroad for 5 years, you are allowed to take your 30% lump sum, as well as the 100% increase in the value of your pension at staggered intervals if you wish. You do not have to take them all at one time. So, in the example above, you could take £60k as an intitial lump sum upon transfer. Then you can take up to £390,000 in 20 years time. This can then be reinvested in a tax-free investment portfolio or used to purchase property.
Isle of Man 50c. Maximum Annual Withdrawal
Unlike a UK SIPP, the Isle of Man 50c does not have to adhere to GAD rates. There are no applicable HMRC limits, but is at the discretion of the trustees. Under the Boal & Co. Trinity QROPS, the annual limit would depend on the age, sex, marital status and the assumed rates of return for the pension. As a general guide, if you are:
- 60 Yrs Old;
- and the investment performance of the pension is assumed at 6%;
- then the maximum annual drawdown would be 7.53%. If he was single it would be 8.11% maximum.
Obviously, the older the age and greater the projected performance the better the rate. Also, if a member is single with no spouse pension to factor in, then there will be a larger pension allowed.
Can I transfer from the old Isle of Man Scheme to the new Isle of Man 50c scheme?
Yes, in fact we can help pay for any transfers into the Trinity scheme until 30th September 2011.
We will cover exit fees Pound for Pound up to £750, thus enabling our standard set up fee of £1250 to be discounted to as low as £500 on new in-specie transfers.
The old Isle of Man scheme had a 20% income tax under the 1989 Income Tax Act in IoM. The Trinity scheme is written under the new 50c rules where this 20% income tax and the 7.5% IHT tax were both removed.
Isle of Man 50c Summary:
- Avoids UK income tax
- Avoids UK capital gains tax (CGT)
- Avoids UK inheritance tax (IHT)
- Avoids UK death tax of up to 45% after 75
- Avoids UK dividends tax
- Allows larger pension income than the usual UK GAD rates
- Allows total freedom of investment. Invest in cash, bonds, mutual funds, ETF’s and shares on most major exchanges
- If you are risk averse, you can transfer into funds which guarantee 100% of capital returned.
- You can choose the currency of the funds. So, if you are in Spain, you can transfer your pension to Euros. If you are in the Caribbean or Canada, you can transfer into USD. You can also keep it in GBP.
For more information, send an email to firstname.lastname@example.org
Isle of Man 50c article written by QROPS Specialists.
QROPS Isle of Man 50c Tax Changes by Richard Malpass