Offshore Tax: Isle of Man QROPS get all-clear from HMRC

The UK tax authorities have finally give the all-clear to overseas personal pension schemes written in the Isle of Man under the island’s recent pensions legislation.

The move follows completion of a six-month review by HMRC officials, who were checking whether these Manx schemes fell within UK tax legislation relating to Qualifying Recognised Overseas Pension Schemes, or QROPS.

HMRC confirmed last week that these schemes are capable of meeting the conditions to be QROPS, and already 170 Isle of Man schemes have appeared on the HMRC website's list of approved schemes.

The Isle of Man passed its 50C pensions legislation, which allows personal pension plans to be set up for non-Manx residents with investment returns and benefits free of Manx tax, in October last year. Until the advent of Section 50C, benefits paid to non-residents from personal pension plans were liable to Manx income tax, with a top rate of 20 per cent. Some Isle of Man QROPS providers had therefore previously domiciled their schemes in Guernsey, where local tax laws already allowed benefits to be paid out gross.

QROPS allow long-term British expats to transfer their pension pots overseas. They were first allowed by HMRC five years ago. Since 2010, an alternative vehicle, the QNUP (Qualifying Non-UK Pension Scheme) has been available, which also provides opportunities for inheritance tax planning. One of the points at issue with HMRC was the proportion of the pension pot that could be paid out as a tax-free lump sum. HMRC officials were concerned that some expats have been transferring pension plans offshore simply to provide themselves tax free lump sums, rather than provide for their retirement.

The HMRC list of QROPS not only includes schemes from offshore centres such as the Isle of Man, Jersey and Guernsey, but schemes in Australia, New Zealand, Canada, and EU member states. QROPS are however not always suitable for expats and it is wise to take unbiased professional advice before transferring to a scheme.

Isle of Man is home to 23 registered pension providers, offering over 650 international pension and benefit schemes, many for multinational companies.

Stuart Clifford, chairman of the Manx Association of Pension Scheme Providers (APSP) said: “With the flexibility of the island's schemes, together with the long-established regulatory system for pensions in the Isle of Man, we are now right at the top of the tree as a QROPS jurisdiction."

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