The HMRC has made it very clear recently that for an overseas jurisdiction to remain in their good books, there must be a tax liability for the member. This doesn’t mean that the Isle of Man is no longer a valid option of overseas pension transfers and QROPS but merely that extra care must be taken in utilising these types of products.
Since April 2012 Isle of Man Section 50C schemes which have different tax liabilities for residents and non-residents no longer fall under the QROPS categorisation. However, the alternative 1989 schemes remain fully compliant with HMRC new QROPS criteria.
The 1989 schemes will be very familiar to those with an understanding of equivalent Guernsey QROPS with the trustee having broad control over investment direction and delegating control to a fund adviser, discretionary fund manager or indeed the member themselves.
In the Isle of Man pension commencement lump sums are generally not taxable under the terms of the Income Tax Act although this is subject to the member’s place of residence. Similar to other jurisdictions, income from QROPS is subject to Isle of Man tax up to the top rate of 20%. However, it is important to realise that this tax liability can be reduced to zero depending on whether the individual is resident in a country with a Double Taxation Treaty. If the individual dies before the commutation of benefits then an additional 7.5% tax will be payable.