Isle of Man: Isle Of Man Pension Schemes Offer Lasting Tax Efficiency To Expat Pensions Market

Isle Of Man Pensions Plc Now Very Much Open For Transfer Business
Last Updated: 21 January 2009

The Isle of Man is now leading the way in providing tax efficient pension schemes for overseas workers and expatriates with deferred UK pensions. Prior to UK A-Day (April 2006 when the British Government brought in sweeping changes to the UK pensions system) pension transfers from the UK to the Isle of Man, along with other overseas countries, operated under a long-standing reciprocal agreement, which relied upon the person's tax residence having moved from the UK to the Isle of Man.

The effect of A-Day was to tear up all such reciprocal agreements and replace them with the current QROPS Regime. Any pension transfer can be made from a UK scheme to an overseas scheme at any time, provided only that the latter is registered with HMRC as a Qualifying Recognised Overseas Pension Scheme.

Global client base

One leading company operating in this sector, consulting actuaries and pension scheme providers, Boal & Co, has many such schemes that now hold QROPS status and demonstrate the breadth of international appeal. Already this year, UK/Isle of Man pension transfers have been completed for clients in places such as the USA, Spain, Thailand, Dubai, Japan and Indonesia – as well as the Isle of Man.

What sets Isle of Man schemes apart is their regulated nature, and a pragmatic approach to scheme benefits. Key drivers are the ability to avoid having to buy an annuity, to keep investment control like a SIPP, to retain funds on death, and to face only 7.5 percent tax on death. There is also the potential for some tax savings on the pension in payment.

Boal & Co's Managing Director, Gary Boal, says it's the approved status nature of Isle of Man QROPS that is key to their success – and is the fundamental issue at the heart of providing proper pension provision for expatriates and non-doms.

'The first point to note is that individuals who transfer UK pensions to an Isle of Man pension never have to buy an annuity - never ever,' he stressed. 'This means that funds can be retained within the member's wealth on death, and passed down to the member's beneficiaries or into the member's estate. The member is able to draw down pension on a relatively flexible basis and keep it invested as they wish – whether on deposit, in shares or in funds. There is no distinction whether the member is before or after age 75 – draw down is a lasting provision.

A lasting solution

'Secondly, unlike certain other international jurisdictions which have promised tax-free transfers for UK pensions or hinted at an ability to achieve ''pension busting'', customers transferring their UK pensions to Isle of Man schemes may be confident of a lasting solution. For one thing, all companies who provide pension administration or trustee services in the Island have to be authorised and registered with the Insurance and Pensions Authority. This regulated environment is supported by openness and clarity in dealing with tax – Isle of Man pensions are subject to Isle of Man tax, currently at 18 percent, when they come into payment. But this is offset by the ability to take up to a 30 percent tax-free lump sum and by a personal allowance.

'However, it is a fundamental requirement of any scheme used for UK pension transfers that pensions paid from the scheme are subject to local tax: so tax-free is simply not an option. What is possible, though, is low tax, a wide range of investment choice and flexibility on the nature and form of eventual pension benefit.'

Unlike some of our competitors, he points out, the Isle of Man has had the boldness to turn the issue of tax into a positive element of the scheme's design. What the Island's tax authority has done is attach tax to both domestic and international pensions in a way that, far from being seen as anti-competitive, is highly attractive in that it clarifies one of the central issues of requiring tax to be deducted at source.

'This is particularly important where pensions are being transferred after being built up in the UK. Isle of Man schemes make it clear that when pensions come into payment, they are subject to Isle of Man tax. This application of tax satisfies the requirements of the UK Revenue.

Open and liberal

'A transfer of UK pensions is possible provided the Isle of Man scheme is registered as a QROPS with HMRC and honours the specified reporting requirements to HMRC. For many expatriates and non-doms with pensions left behind in the UK, pension transfer to an Isle of Man scheme can provide huge advantages, with no strings attached.'

The Isle of Man's move towards seeking a series of bi-lateral double tax agreements with other jurisdictions – including Spain, with its huge pool of British expatriate residents – is welcomed by Gary Boal as another demonstration of the Island's ability to tackle important tax issues head-on. By clearly discharging any local tax liability, the Isle of Man schemes avert the threat of tax bills being incurred from both home and abroad.

'The Isle of Man is offering proper, regulated pensions in a lasting tax efficient environment,' explained Mr Boal. 'Unlike UK pensions, which have been subject to huge tax changes in recent years, and the effective, politically motivated application of an 82 percent tax rate on pension funds remaining on death, the Isle of Man schemes have only a 7.5 percent tax rate on death of the last member - and it is possible to bring in additional family members to keep a scheme running.'

Reporting requirements

Mr Boal continued: 'QROPS conditions impose reporting and other obligations on the overseas administrator to HMRC.

However, these and some conditions – such as Member Payment Charges – fall away after five years of UK nonresidence. Once the overseas transfer has happened, if the member has been UK non-resident for five years (and is non-resident when the pension is paid) there are no reporting requirements.

'Isle of Man personal pensions can obtain contracted-out approval, and we now have a choice of master trust-based personal pension arrangements to which UK protected rights can be transferred. As with the main pension fund, protected rights can also operate on a draw down basis in retirement.

This new breed of Isle of Man based international pension is aimed primarily at British expatriates and non-doms – individuals who have in the past built up UK pensions but are no longer UKresident, who have worked in the UK in the past and accumulated UK pension funds. They are also available to the local Isle of Man market, including wealthy individuals who physically relocate from the UK – though this is no longer a prerequisite for an Isle of Man transfer.

Successful life sector

Isle of Man pension schemes operate in a well-regulated environment introduced by the Isle of Man Retirement Benefits Schemes Act 2000 and Subordinate Regulations. Scheme administrators and trustees must be authorised by the Insurance and Pensions Authority, the same regulator as for the Island's highly successful offshore life assurance sector. The Isle of Man Treasury believes its offshore pensions sector will emulate the success of the offshore life sector, which, after 25 years of expansion, now boasts funds under management of more than Ł35 billion.

'First and foremost, QROPS take UK pensions out of the UK system of pension rules. This has a number of benefits, including enabling pension funds to be passed down a generation – unlike the very harsh regime in place in the UK - with only a 7.5 percent tax on eventual wind-up. In addition, schemes have a variety of other benefits, including allowing a higher, 30 percent tax-free lump sum as well as a wider investment choice, including investments that are not permissible in UK SIPPS.

'Given the opportunities that the Island's pension framework provides – most particularly for moving nonresidents' UK pensions to a more flexible, tax-efficient environment – and given the professional expertise and range of schemes now available, Isle of Man Pensions Plc is now very much open for transfer business,' added Gary Boal.

www.boal.co.uk

www.gov.im/IPA

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.