Pension changes

New rules effective 6 April 2027

This measure will affect individuals inheriting estates within the scope of Inheritance Tax, including beneficiaries of any unused pension funds or death benefits included in those estates. It will also impact personal representatives, their advisors and pension scheme administrators.

New UK Rule

Most UK pension funds will form part of your estate for IHT purposes from 6 April 2027

IHT Rate

Up to 40% of your pension upon death

Jurisdiction

UK pensions will be subject to IHT no matter how long you live outside the UK

For Isle of Man Residents

The Isle of Man has no IHT or Capital Gains Tax (CGT) regime and a maximum personal income tax rate of 21% (with an optional tax cap)

When you have lived in the Isle of Man for between 3 and 10 tax years (depending on your personal UK residence history) your non-UK assets are outside of the UK inheritance tax net

However, most UK assets, including UK pensions (from April 2027) will remain subject to IHT, regardless of how long you are non-UK resident

Transferring your UK pension to an Isle of Man scheme could therefore reduce your exposure to UK assets and your potential UK IHT liability

Other benefits include the potential to receive a 30% tax free lump sum, if you haven’t already taken it (rather than 25%)

A key consideration in transferring to an appropriate Isle of Man pension (known as a “QROPS”) is what your personal “Overseas Transfer Allowance” is. This is the amount you are allowed to transfer to an Isle of Man QROPS before a 25% charge becomes relevant

For UK Residents Considering Relocation:

The above benefits are potentially available if you have a UK pension and are considering moving to the Isle of Man

This relates to pensions – numerous other financial and personal considerations should be made as part of such a move – tax should not be the dominant driver

You should not transfer your UK pension to the Isle of Man while you are still in the UK as this will trigger a 25% tax charge. You should wait until you get to the Isle of Man and take professional advice