The New QROPS Isle of Man Rules for 2016
Isle of Man financial news – the New QROPS Isle of Man Rules for 2016 include a flat rate 20% tax. The Isle of Man has been through a lot of changes. Before Isle of Man was touted as the best destination for a QROPS and some well known providers even won awards for investing a QROPS product which allowed higher withdrawal than the UK allowed. HMRC they then closed down Guernsey and Isle of Man QROPS for taxing locals and non-residents differently. With a 7.5% tax on death of an Isle of Man QROPS and a 20% income tax, the Isle of Man is no longer the darling of the QROPS world it once was. Still, some people, notably if you live in Bahrain or Qatar and want to transfer their pension to the Isle of Man may still plump for an IOM QROPS as due to the Double Taxation Agreements (DTA’s), there is no income tax to pay. The Isle of Man 50c scheme is long gone and most of the new IOM QROPS face a flat rate of 20% income tax on any benefits drawn unless a DTA exists, of which there are few. Please email us for an updated list of IOM DTA’s and advice on the best jurisdiction for transfer in light of the new rules. The new QROPS rules for 2016 have strengthened the QROPS market and the new QROPS rules appear to be more clear cut than before with Double Taxation Agreements playing a big part, so please email us for advice and the latest QROPS / ROPS news.
The Isle of Man ditched their defunct Isle of Man 50c product in 2013 and have gone back to the older Qualifying Recognized Overseas Pension Schemes written before. This still means you can draw a higher annual income as it is based on your portfolio performance rather than be tied into UK GAD rates. But, you will pay a flat rate of 20% income tax on it if you live in a country at retirement which has no DTA with the Isle of Man.
New QROPS Legislation Isle of Man
The Isle of Man rules changed on April 6th., 2013. The Isle of Man pension companies have now restarted marketing their tried and test EET formula. EET, which is an abbreviation of Exempt Exempt Tax, is an accepted European Union pension standard that includes QROPS. This is key to the new QROPS guidelines which HMRC set out along with the fact that residents and non-residents will be taxed the same amount of 20%. Pensions running as EETs offer exempt contributions, exempt investment income and capital gains and taxed benefits.
What does this mean in practice? A higher pension income, but which is taxable. Let’s take an example.
John lives in the UK and is retiring at age 60 with a UK pension fund of £400,000. His twin James lives in the Far East and is retiring there with a pension fund of £400,000 after transferring his UK pension fund (value £266,000) into an Isle of Man QROPS seven years previously. John’s UK pension is capped at 100% of “GAD tables”. What this means is that John can take a drawdown pension of no more than £19,600 p.a. which is equivalent to what an annuity would provide (based on a 15-year gilt yield of 2.57%, actual yield at 15 April 2012).
James however has an Isle of Man QROPS which is invested in a portfolio of funds chosen by his financial adviser. The portfolio has produced an average return of +6% p.a. over the last 7 years. Assuming this +6% p.a. return continues, James can draw a Select pension of up to £30,500 pa. We believe 6% p.a. after fees is obtainable and sustainable, but will be affected by market conditions.
QROPS Isle of Man Pension Scheme
There are a number of QROPS providers in this field with Boal & co. leading the way. They run a QROPS called the Boal & Co. ‘Select’ QROPS. Click here for a QROPS Isle of Man List
The Select pension is paid by drawdown. If you transfer your UK pension to Select, your fund before and after retirement remains invested exactly the way you (and your investment adviser) want it. Pension is payable to you by annual, monthly or quarterly drawdown of income and capital from your pension fund.
Select can also accept transfers from UK defined benefit (final salary) pension schemes. Transfer values can vary widely from one final salary scheme to another, and for this reason Boal & Co provide an optional Transfer Value Analysis Service (TVAS) to enable you and your financial adviser to assess whether transfer is advisable based upon the transfer value quoted.
From an estate planning perspective, the Select Isle of Man QROPS avoids the 55% tax upon death that the UK imposes if you are drawing benefits from a UK scheme. If the member dies whilst abroad, the whole lot gets passed on to his named beneficiaries which he can choose. It could be his/her spouse, kids or anyone they assign the QROPS to upon death. However, there is a 7.5% IoM tax charge levied on death benefits paid as a lump sum** (although there is a 100% of fund with spousal drawdown continuation option) post-retirement.
What Tax Do I Pay on My Isle of Man QROPS?
Tax in the Isle of Man is set at 20% for most countries. However, it is ZERO in the following countries who have signed Double Taxation Agreements with the Isle of Man:
Tax in the Isle of Man is set at 0% for Australia; Belgium; Bahrain; Ireland; Malta; Norway; Qatar; United Kingdom.
This list of countries is expected to increase significantly in the future.
For those who wish to avoid income tax on their pension, you also have a choice of transferring to a QROPS in Malta (which has over 60 DTA’s with countries around the world, a QROPS in Gibraltar (which has a flat rate 2.5% tax) or a QROPS in New Zealand which also has a significant number of DTA’s although your investment choice is more limited.
Please send us an email for more information on the new Isle of Man QROPS and to get some free advice.New QROPS Isle of Man Rules 2016 by Richard Malpass