Offshore Tax: Is Isle of Man a Good Jurisdiction for QROPS?

As expats seek to make the most of their offshore status through the correct investment of their pensions, according to their own individual position, the Isle of Man is seeking to attract a greater market share of QROPS business through important tax changes and greater investor protection.

We recently reported on Guernsey’s’ move to establish a QROPS Code of Practice to remove consumer confusion from this area of financial services provision on the island.  Guernsey has raced ahead of its competitors as a leading destination for QROPS (qualifying recognised overseas pension schemes), but because this is such an as-yet under-explored area of international pension business, other offshore centres are keen to compete on a level playing field with Guernsey.

In our earlier report we commented that the Isle of Man as a QROPS jurisdiction had recently raised a few eyebrows: certain providers’ interpretations of HMRC qualifying recognised overseas pension schemes rules had seemingly stretched the limits of the taxman’s guidelines.  However, because QROPS business is so critical to the Isle of Man’s ongoing development as a leading offshore centre, we can now report that new tax rules and seemingly strong policyholder protection regulation may mean that the Isle of Man is the new jurisdiction to explore for expats seeking to offshore their pension.

So is the Isle of Man a good jurisdiction for QROPS?  Clearly only a personal examination of scheme offerings from locally based providers will determine whether it’s the right offshore financial centre for you to choose, but as you will see in our report, the Isle of Man has certainly gone all out to dominate this market and to push Guernsey into second place.

QROPS Warning - Offshore Pensions are Not for Everyone!

First things first it is critical that we mention that this article does not constitute financial advice, nor is it written to suggest that the Isle of Man is the best jurisdiction for an individual reader to choose, or that QROPS are the most appropriate offshore pension path for every single expat.

Qualifying recognised overseas pension schemes are an exceptionally exciting solution for some but not all expats - and to decide whether you could benefit from QROPS, and where any offshore pension should be invested and held will have to be determined on an individual basis with professional, regulated, qualified and independent financial advice.

Don’t take any chances when it comes to your pension savings - always seek best advice before moving or investing any money.

Tax Changes in the Isle of Man that Benefit Manx QROPS Schemes

As stated, the Isle of Man wants to clean up in the QROPS marketplace.  Currently Guernsey is a dominant player because it is seen as being an exceptionally attractive place for the investment of offshore pensions.  However, there is up to an estimated £400 billion worth of scope in this single area of financial planning and investment, so you can clearly see each offshore centre’s motivation for making their investment landscape as attractive as possible to QROP scheme providers and their investors (i.e., expats like us).

In order to bring increased business to its shores, the Isle of Man has made a significant change to its tax rules.  At the end of last year the Isle of Man Treasury agreed to allow pension and other employee benefit payments paid to people outside the island from a locally-domiciled pension scheme to be exempt from Isle of Man income tax.  Income from a Manx QROPS can now be enjoyed gross by a policyholder therefore, and if that policyholder lives in a low or no tax jurisdiction, they can conceivably enjoy a far greater percentage of their invested income than before.

This change makes the Isle of Man a real ‘player’ when it comes to QROPS provision.  However, we would be completely naïve to ignore the huge black ‘regulation cloud’ that still hangs over the island.  And before any expat considers committing their pension to the island we would urge them to explore the regulations in place for the protection of their invested wealth on the Isle of Man.

What Regulations are in Place to Protect Expat QROPS Holders in the Isle of Man?

The Isle of Man’s reputation was scarred following the collapse of Kaupthing Singer and Friedlander, and the fact that affected savers and investors have been treated shabbily by the investor protection scheme supposedly in place on the island at the time.  Investors are still fighting to get their compensation, and their plight has lifted the lid on the legitimacy and true viability (or otherwise) of any investor compensation scheme in place anywhere in the world.

However, according to John Batty, business development manager at Isle of Man Finance, the government regulates life assurance and pensions business through a separate life and pensions authority.  There is specific pensions legislation in place on the island and so according to Mr. Batty: “we are perceived as a more regulated jurisdiction than some of our competitors.”

But what does this mean for any expat investor thinking about transferring their UK pension offshore to the Isle of Man for example?

Well, we have examined the policyholder protection legislation in place and have found that, (according to the IoM government website): “For life assurance companies, the Isle of Man’s Life Assurance (Compensation of Policyholders) Regulations 1991 ensure that, in the event of a life assurance company being unable to meet its liabilities to its policyholders, up to 90% of the liability to the protected policyholder will be met.

“Unlike many other policyholder protection schemes, the Island’s scheme operates globally, providing protection to policyholders no matter where they reside.

“The scheme would be funded by a levy on the funds of the other life assurance companies.”

Other Positive Isle of Man QROPS Developments

Following hot on the heels of Guernsey’s development of a Code of Practice for QROPS, the Isle of Man established an Association of Pension Scheme Providers last month.  The body will not be involved in consumer protection however, but it will work to liaise with the government to ensure the positive development of QROPS business on the island.

According to the Association’s chairman Stuart Clifford: “The island didn’t have a pension body which can liaise with government on behalf of the industry.  These are exciting times to be in our line of business.  Recent changes to pensions legislation in the Isle of Man have removed some barriers, and possibly even given the jurisdiction a competitive edge over others in the provision of non-resident pension schemes.”

It is therefore clear that the Isle of Man is one to watch for the long-term development of a positive and exciting QROPS environment, and anyone contemplating transferring their pension offshore or establishing their expat pension in an advantageous jurisdiction may wish to discuss whether any Isle of Man scheme suits their requirements.

Remember that QROPS are not right for everyone, not everyone should offshore or transfer their pension, some jurisdictions are right for some people only, and a personalised examination of your individual position by a regulated, qualified, experienced and independent financial adviser is critical before you take any steps that could affect your wealth status.

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