Stephen Ward BA (Econ), ACII, APMI, APFS, AIFP

Managing Director

Premier Pension Solutions SL

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By Stephen Ward BA (Econ), ACII, APMI, APFS, AIFP - Mon 22th Aug 2011

 

Tumbit Approved Partner

In our previous article, my colleague wrote of the existence of various jurisdictions around the world that are available for UK expats to transfer their UK pension rights to. He specifically looked at Guernsey, considered its advantages and the key disadvantage associated with the absence of any investor protection.(Click HERE to read that Blog).

ISLE OF MAN QROPS

In this article, we remain relatively close to home and consider how QROPS work in the Isle of Man (IOM). Until very recently, although widely sold in Spain, an IOM QROPS could never be a suitable option because of the absence of a double taxation treaty between Spain and IOM. This meant that income taken from the IOM pension scheme was taxed at 20% - which could neither be reclaimed nor offset against liability to tax in Spain. Add to that a Manx inheritance tax charge at 7.5% of the fund on the members death meant other jurisdictions, in particular Guernsey were always a better option.

SECTION 50C

That now has all changed. The Manx Government introduced ‘section 50C’ into its tax law last October. The Income Tax (Pensions) (Temporary Taxation) Order 2010 amended the Income Tax Act 1970 by inserting a new section 50C. These schemes (following an HMRC review) are capable of being registered with HMRC as a QROPS.

The main characteristics of a Section 50C scheme are:

- Available to residents and non-residents of the Isle of Man

- Registered with the Manx Insurance and Pensions Authority

- Tax-approved by the Assessor of Income Tax

- At least 70% of tax-relieved funds must provide the member with an income for life

- Income from investments is exempt from IOM tax

- Pension income for non-residents of the IOM is paid gross

- No Manx IHT charge applies on death

Where there is reference to ‘tax-relieved funds’, this is interpreted by the Assessor of Income Tax to mean the value of the fund transferred in.

So the section 50C requirement to designate at least 70% of tax-relieved funds for a pension means at least 70% of transfer values received must provide a pension. The remainder can therefore be paid as a retirement lump sum. And here then lies the key advantage of a Manx section 50C QROPS.

EXAMPLE SHOWING THE KEY ADVANTAGE OF IOM S50C QROPS

If you are aged, say, 45 and transfer in a UK pension fund of £100,000 which by your 55th birthday accumulates to £180,000 – then provided you have been outside the UK for at least five tax years the permitted lump sum is:

30% of the transfer value - £30,000 plus

100% of the investment growth - another £80,000

Therefore, in this case a total of £110,000 may be then taken as a lump sum. Under UK rules this would be 25% of the fund (i.e. £45,000) and through a Guernsey QROPS 30% of the fund (i.e. £54,000).

IOM – THE QROPS JURISDICTION OF CHOICE ?

In a QROPS jurisdiction which offers investor protection through an Ombudsman service, a robust system of regulation associated with pension schemes and a potential lump sum which can significantly exceed UK rules has obvious attraction. IOM QROPS tend also to have lower fees than the Guernsey equivalent so for those looking for a long term and stable solution then IOM may become the jurisdiction of choice.

For further information about QROPS and Pension Planning opportunities please contact us today via clicking the link Here and leaving a few basic details on the form at the foot of the page.