A-Day changes have produced a number of inconsistencies between the UK and Isle of Man pensions tax systems.
In its latest consultation on proposals for its own version of pension tax simplification, the Isle of Man Treasury reveals HM Revenue and Customs has already terminated one agreement between the territories because of differences in their systems.
The 10-page document, which outlines plans for changes to the ways income tax is associated with pensions, reveals HMRC has from the 6 April terminated the reciprocal transfer agreement between the two territories.
Before A-Day, transfers of pension scheme entitlement between the two areas was relatively straightforward, but now the arrangement between the two jurisdictions “is not reconcilable with the UK rules”, so each Manx scheme wishing to accept transfers from the UK must now independently approach HMRC to achieve a specific recognised status.
In addition, A-Day has also been the cause of the Isle of Man delaying their proposed pension tax reforms for five years, as originally the proposals were put forward in draft legislation for the Income Tax (Retirement Benefit Schemes) Bill 2001.
At the same time, however, the Inland Revenue - now HMRC - revealed they were also planning a “major rewrite of the equivalent UK legislation”, which was scheduled to take place on 6 April 2004, so the Isle of Man agreed to defer their changes until the UK ones were in place.
As A-Day was then postponed until 6 April 2006, the Isle of Man has waited until “the full scope and potential of the UK changes was known” before restarting the legislative process.
Under the original proposals, the Isle of Man plans to change the income tax treatment of pensions so:
- Personal pensions and occupational schemes would be dealt with under one piece of integrated legislation instead of two;
- There would be improved consistency of treatment for all money purchase arrangements whether occupational or personal;
- There would be simplification in relation to the granting of relief for contributions and the calculation of tax-free lump sums;
- Carers and others who do not have relevant earnings would be permitted to make payments into a personal pension scheme;
- There would be greater flexibility in the taking of a pension, and
- There would be flexibility in taking an occupational pension while continuing to work for the same employer.
However, following A-Day the income tax division of the Island’s Treasury says it proposes to allow the extra-statutory benefits of members being allowed to take up to 25% of a pension fund tax free, while also permitting the commutation of a trivial pension or pensions up to a total of £15,000.
In addition, it says it will allow scheme concurrency so an individual can hold a personal pension plan as well as be a member of an occupational scheme provided the total annual contributions are no more than 15% of net relevant earnings.
The consultation, which closes on 17 November, asks for opinions on a number of pensions tax issues such as whether the minimum scheme pension age should be raised from 50 to 55 and whether lifetime limits and allowances should be introduced.
In addition, the Isle of Man Treasury says while the consultation outlines its intentions “to implement improvements, and gather views to inform the policy process and the drafting of new legislation”, it also hopes it will “generate debate about changes which were proposed some time ago, and the degree to which the UK changes might, or might not, be appropriate for introduction here”.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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