Isle of Man Recognised Overseas Pension Schemes or IOM ROPS are most popular for British expats and Irish expats moving to Australia, Qatar or Bahrain.
An IOM ROPS has 20% income tax deducted at source unless there is a Double Taxation Agreement with your country of residence in retirement.
Fortunately, Australia, Qatar, Bahrain, Poland, Estonia and the Seychelles all have DTA’s which means the tax in IOM on income would be zero.
In Australia’s case, you would pay Australian income tax on retirement benefits, so, you may be better transferring some of your pension scheme into an Australian SMSF instead, if possible.
For Qatar and Bahrain, there is no income tax in IOM, Qatar or Bahrain.
The tax on death in the Isle of Man is 7.5%.
You can invest your ROPS pension into the currency of your choice and there is a huge range of investment options to choose from.
Your pension income, drawdown, is figured out by an actuary after you have been resident outside the UK for 5 years; before this time 150% GAD rates are used. This means that annual income can be higher than what was traditionally offered in the UK.
The Isle of Man also offers a Qualifying Non-UK Pension Scheme (QNUPS). This allows you to put some of your wealth into a further, separate retirement pot to a QROPS.
This is useful for people who have no UK pension scheme to transfer or have additional wealth that would normally fall into Inheritance Tax (IHT) of 40%.
An example may be an oil & gas worker who has worked offshore all his life, but because he has a house and family in the UK, may still be subject to UK Inheritance Tax (IHT) of up to 40%.
They may have built up an offshore pension plan with Shell and now want to move it into a tax shelter which provides them with an income for life.
Similar to a QROPS, a QNUPS offers a 30% tax-free cash lump sum and the rest must provide an income for life.
An IOM QNUPS, unlike a QROPS, has zero tax for someone who is resident outside the Isle of Man. They also must be tax resident outside the UK. But, they do not pay the 20% income tax that an IOM QROPS attracts.
QNUPS payments are made gross with no deduction.
The Isle of Man Income Tax Act 1970, states:
“A relevant benefit made under a scheme approved under subsection (2) shall be payable to a person without the deduction of income tax but shall be income in respect of which income tax may be imposed under the Income Tax Acts.”
Essentially this means that the payment from an IOM 50C scheme (the QNUPS) is made gross, but for Isle of Man residents it is assessable for Isle of Man tax through self-assessment . For non-Isle of Man residents, the income is still paid gross and is assessable wherever they are resident.
So, it is up to the pension member (QNUPS member) to declare income tax on their IOM QNUPS if it is taxable as a foreign pension in their country of tax residence at retirement.
The Isle of Man Income Tax Act 1989 which relates to QROPS is taxable at 20% as mentioned above.
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