Interest in offshore pension arrangements, already stimulated by the QROPS rules under FA 2004, has received a further fillip from the Isle of Man. Tynwald has recently approved significant changes to Isle of Man tax legislation as it relates to approved pensions arrangements. The Income Tax (Pensions) Bill 2007, which is currently awaiting Royal Assent, changes the extent to which tax relief on contributions is granted and how scheme members can access the funds. Commencement is expected to be made retrospective to 6 April 2008.
Following its passage through Tynwald, on 14 April the Income Tax Division published a consultation document on the draft orders and regulations needed to support provisions being introduced via the Bill.
Royal Assent is unlikely to occur before the Tynwald sitting scheduled to take place on 17 June 2008. After formal enactment the new legislation will be posted on the web.
Further detailed guidance on Isle of Man pensions is included in the latest update of the Aries Pensions System.
The Bill contains 19 clauses:
Clause 1 confirms that when an occupational pension is paid out, it must be subject to income tax at source.
Clause 2 allows a member of an approved personal pension scheme to draw funds directly from the scheme, rather than purchasing an annuity. Consequential amendments include confirmation of the amount that is subject to income tax at source and the treatment of the remaining fund following the death of the member.
Clauses 3 and 4 allow the making of regulations regarding the investment that an approved scheme can make.
Clauses 5 and 6 allow a whole pension fund to be paid out as a lump sum, where the amount is small. The amount paid will allow a tax-free element, with the balance being subject to income tax at the lower rate of 10 per cent.
Clauses 7, 8 and 9 remove the maximum permitted lump sum payable and increase the lump sum available from 25 per cent to 30 per cent of the value of the fund on retirement.
Clauses 10 and 11 allow a member to take the lump sum before the annual pension. The current position, where both the lump sum and pension must be taken at the same time on retirement, will therefore be relaxed.
Clause 12 allows a member to draw a pension whilst continuing to work.
Clauses 13 and 14 introduce an annual allowance limit of £300,000 for contributions replacing the existing percentage-based limits and simplifying the contribution rules, so that most members pension schemes will be able to pay the amount they can afford, rather than be restricted to an amount allowed by statute.
Clauses 15 and 16 deal with consequential amendments needed to support the changes. These include allowing the Assessor to obtain information relating to existing pension schemes.
Clause 17 amends section 50B of the Income Tax Act 1970 and will introduce a concept of an International (in addition to the existing Domestic) personal pension in the Isle of Man.
Clauses 18 and 19 deal with the interpretation, short title and commencement of the Bill. Commencement is expected to be retrospective to 6 April 2008.
The consultation document provides an update in relation to the passage of the Bill and includes copies of the draft orders and regulations. The consultation invites comment in relation to all of the draft orders and regulations, and makes particular reference to:
Besides income drawdown, the draft legislation in the consultation document is concerned mainly with scheme investment rules, trivia awards and minimum tax relief limits.
The consultation process remains open until 16 May 2008.