The Isle of Man (IoM) has come out of the corner fighting in a battle to plunder the UK pension pots of expats by offering a new tax friendly QROPS scheme.
Guernsey has enjoyed a free and easy ride for a while as queen of the QROPS (Qualifying Recognised Overseas Pension Scheme) as high-earning expats opted to invest their cash on the island where pension benefits are paid out gross.
Now, the Tynwald, the IoM parliament, has voted to scrap tax on pension benefit payments that lets finance firms based on the island compete toe-to-toe with Guernsey.
Many industry insiders feel the IoM will come out on top, as the country’s financial regulators are rated as more robust than those policing their rivals.
The move was agreed when the Tynwald was in session last week.
The vote backed proposals to let QROPS pensions offered by firms on the island pay benefits without deducting tax under Section 50C of the Income Tax Act 1970.
Blatant bid to attract investment from high earners
Special terms were written in to the new rules to ensure the 50C pension meets HM Revenue and Customs guidelines for QROPS schemes.
The pension rule change is a blatant bid for the IoM to grab pension funds from 100,000 or so wealthy individuals in the UK who are likely to lose out under tax curbs due for introduction in April.
The changes slash tax relief to the first £50,000 on annual contributions from the current limit of £255,000. The lifetime pension threshold of £1.8 million drops to £1.5 million at the same time.
QROPS in the IoM and Guernsey are attractive offshore pension options for expats leaving the UK for good or non-UK residents who have accrued pension rights.
Other IoM tax advantages for high earners are a top rate tax band of 20% capped at a maximum income tax payment of £115,000 a year or a 10% for most others, while the island has no inheritance tax or capital gains tax.