Isle of Man QROPS Jurisdiction, which includes the rules and tax treatments, main picture
 
Isle of Man pensions are approved under any of the following acts;

  • Income Tax (Retirement Benefits Schemes) Act 1978
  • Part I of the Income Tax Act 1989
  • Section 50B of the Income Tax Act 1970
  • Section 50C of the Income Tax Act 1970

Assuming a pension can abide by any one of these acts in addition to QROPS regulations set out by HMRC then it can legitimately be classed as a Qualifying Recognised Overseas (UK) Pension Scheme (QROPS).

What follows is an in depth look at Isle of Man QROPS to establish whether it may be the best jurisdiction for you including a list of QROPS providers, key facts, rules, tax implications, and Double Taxation Agreements.

QROPS Isle of Man key facts


Isle of Man pension rules

In reality a QROPS will only qualify under Part I of the Income Tax Act 1989. The other pension regulations either fail the Benefits Exemption Test (Section 50C), or solely cover occupational schemes (Income Tax Act 1978) or foreign pensions (Section 50B). The former offers more favourable terms to non-resident pension plans via a tax exemption thereby falling fowl the aforementioned test. None of these are acceptable under HMRC’s rules.

Part 1 of the Income Tax Act 1989 rules

  • The pension scheme must be open to both residents and non-residents
  • Manx (another name to denote belonging to the Isle of Man) tax relief can be claimed on any contributions up to 100% of one’s salary or £300,000 whichever is the lower
  • Payments can take the form of an annuity or pension drawdown. The latter is when income is withdrawn annually between defined limits. Both must occur between the age of 50, unless the member is of a profession that enables a pension to be accessed earlier, and 75
  •  
    To abide by HMRC rules a QROPS can only allow a pension to be accessed after the age of 55 except where a person’s profession allows an early retirement.

  • If payment is made via an annuity then this can passed, via a will, to a dependant, a spouse or can be guaranteed for up to 10 years. Payments to the former can stop either when the dependant reaches 18 years of age or when they leave full time education. Should a spouse receive a pension it cannot be worth in excess of the maximum annual income entitled to, or received by, the member prior to their death. Also, in the event of the spouse remarrying then payments of an annuity can stop. Finally, a spouse’s payments may cease if, upon the last dependant reaching 18, the spouse is under 45
  • Should a pension enter drawdown then the annual rate of withdrawal is between 1% and 150% of UK GAD tables
  • These provided a reference to the maximum amount of income that could be withdrawn from a pension in the UK and were conceived to ensure a person was unlikely to exhaust their retirement savings. They are based on a person’s age and the prevailing 15 year UK gilt index yield though they no longer apply to UK pension schemes due to the rule being scrapped in favour of offering full flexibility.
     
    100% of GAD rate = the rate stipulated on the tables per £1,000 based on your age in complete years and the UK gilt (15 years) yield rounded down to the nearest 0.25% obtained on the 15th day of the preceding month prior to calculation.
     
    For example, the basis amount per £1,000 assuming a person is 62 last December and the 15 year UK yield being 2.33% then one should search for the GAD table entry for age 62 & gilt index yield of 2.25%. This was £52 according to the latest tables. Therefore, someone with £100,000 withdrawing 100% of GAD rate could take £5,200 (52 x 100,000/1000).
     
    Extending the above to account for Isle of Man pension rules and an assessed pot worth £100,000, the withdrawal rates would have to be between £52 (1% of GAD rate) and £7,800 (150% of GAD rate).
  • The rate stipulated on the UK GAD tables must be assessed when first accessing a pension then at least every three years thereafter
  • The maximum pension lump sum is 30% of the total fund. This must be taken when a pension is first accessed (crystallised)
  • Income and capital gains tax rate is 0% so investments can grow tax free
  • Pension withdrawals are subject to income tax unless a Double Taxation Agreement (DTA) exists in which case income may be payable gross, without tax, instead
  •  
    Income tax rates are as follows;
    Personal Allowance = 0%
    Standard Rate = 10% on first £10,500 of taxable income
    Higher Rate = 20% on next £594,750 of taxable income after which no further tax is due. Therefore the maximum amount of tax that a resident can pay is £120,000 per year
    Non-resident rate = 20% unless a DTA allows for pension income to be paid without Isle of Man (sometimes referred to Manx) tax being applied

  • In the event of death, a tax of 7.5% will apply to any pension funds in drawdown. Should a member not have started withdrawing pension funds prior to death then no tax is applicable

Pension freedom offering full flexibility, i.e. access to your pension savings upon reaching retirement age as and how you prefer, in line with existing UK pension rules will be assessed for introduction after winning Tynwald backing. Tynwald is the parliament of the Isle of Man which dates back in excess of 1,000 years. Further information on the outcome will be added when it becomes available. Currently, due to the Manx island not being part of the EU then it has to abide by HMRC’s temporary reinstatement of the 70/30 rule which prevents full flexibility being offered by non-EU jurisdictions. There is no timeline at present dictating as to when this temporary measure will be revoked.

All the Isle of Man’s pension rules comply with HMRC’s regulations for QROPS with the exception of the minimum age. Therefore, so long as an Isle of Man QROPS does not allow pension access prior to 55, except in the limited circumstances set out above, and qualifies as a pension under Part I of the Income Tax Act 1989 then it can be deemed a legitimate QROPS

HMRC’s QROPS list of Isle of Man providers

The QROPS list of overseas pension providers recognised by HMRC is currently updated bi-monthly. The normal caveat of the list not being trustworthy due to self certification continues to apply. Therefore it cannot be relied upon to prevent an unauthorised payments charge. Bearing this in mind, the latest QROPS list of Isle of Man providers can be found here.

Double Taxation Agreements (DTAs) & Tax Information Exchange Agreements (TIEA)

Double Taxation Agreements are signed by two willing countries and stipulate in which country tax is due, in which one tax relief should be requested, and the rate of tax relief you are entitled to. Further to this the Isle of Man has signed Tax Information Exchange Agreements. Countries that have signed DTAs and, if not, TIEAs are as follows;

Jurisdiction Signed DTA or TIEA details
Argentina Tax information exchange agreement signed
Australia Tax information exchange agreement signed
Bahrain Signed on 3rd of February 2011
Belgium Signed on 16th of July 2009 but awaiting ratification
Canada Tax information exchange agreement signed
China Tax information exchange agreement signed
Czech Republic Joint declaration signed 18th of July 2011
Denmark Signed on 30th of October 2007
Estonia Signed on 8th of May 2009
Faroe Islands Signed on 30th of October 2007
Finland Signed on 30th of October 2007
France Tax information exchange agreement signed
Germany Tax information exchange agreement signed
Greenland Signed on 30th of October 2007
Guernsey Signed on 24th of January 2013
Iceland Signed on 30th of October 2007
India Tax information exchange agreement signed
Indonesia Tax information exchange agreement signed
Ireland Signed on 24th of April 2008
Italy Tax information exchange agreement signed
Japan Tax information exchange agreement signed
Jersey Signed on 24th of January 2013
Lesotho Tax information exchange agreement signed
Luxembourg Signed on 8th of April 2013
Malta Signed on 23rd of October 2009
Mexico Tax information exchange agreement signed
Netherlands Tax information exchange agreement signed
New Zealand 27th of July 2009
Norway Signed on 30th of October 2007
Poland Signed on 7th of March 2011
Portugal Tax information exchange agreement signed
Qatar Signed on 6th of May 2012
Seychelles Signed on 28th of March 2013
Singapore Signed on 21st of September 2012
Slovenia Signed on 27th of June 2011
Sweden Signed on 30th of October 2007
Switzerland Tax information exchange agreement signed
Turkey Tax information exchange agreement signed
United Kingdom Signed on 29th of July 1955
United States of America Tax information exchange agreement signed

Full details of the double taxation agreements can be found on the Isle of Man Government website.

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Finding the best QROPS. Isle of Man as a QROPS jurisdiction examined written by Don MacRitchie average rating 4.6/5 - 10 user ratings