How does retirement affect my tax affairs?
If you start to receive a Manx occupational pension, it will be treated in the same way as your employment was, and a tax code will be issued to instruct your pension provider how much free pay you are entitled to, and consequently how much tax needs to be deducted each week/month as you are paid.
This code may be amended to reflect the commencement of state retirement pension payments, an increase in investment income resulting from investment of a lump sum, or receipt of a personal pension.
It is therefore important, particularly when your circumstances change, that you review your tax code to ensure that the allowances granted represent your affairs accurately. If you do not review your code and notify the Income Tax Division of any changes promptly, the code may not collect the correct amount of tax and there will be an outstanding tax liability to pay at the end of the tax year.
I will be receiving a lump sum as part of my occupational pension. Will I pay tax on this?
The lump sum itself will not be subject to tax, but if you choose to invest this amount the interest you receive on it will be taxable. If you do intend to invest an amount you should inform the Income Tax Division so the potential interest can be included in your tax code, preventing any underpayment and a subsequent bill. The same treatment applies to lump sums recieved from maturing life policies and investments.
Will I pay tax on my state pension?
Yes, the state pension is taxable income. If you are already paying tax against an occupational pension or other employment then it is best to notify the Income Tax Division as soon as you start receiving your state pension so that we may review your tax code. You may also receive a payment on account notice as a result of this increase in your income. For further information see Payment on Account.
My only income will be my state pension. Will I still have to complete a tax return every year?
If your total income is less than the level of your personal allowance, the Income Tax Division may review your case less frequently, and remove the requirement for an income tax return to be completed. If this applies to you, you will be sent a letter confirming the position. Your circumstances will be subject to review on a regular basis by the completion of a tax return every few years to confirm that your circumstances have remained the same.
My income will be very low now I have retired. Will I still have to pay tax?
If your income falls below your personal allowance, then no, you will not pay tax. You may be entitled to a Personal Allowance Credit. For further information see Personal Allowance Credits.
I will be receiving a pension from a provider who is not based in the Island. Do I still pay Manx tax?
You will have to pay Manx income tax on pensions and other sources of income being paid from outside the Isle of Man. However if these amounts have already been taxed by the jurisdiction from which they originate then we may grant Double Taxation Relief. For example, if you are a 10% tax payer in the Isle of Man and you paid 40% tax elsewhere, then no further tax would be deducted. If you are an 20% taxpayer in the Isle of Man, and have paid tax elsewhere of 15%, we will grant relief on the 15% already suffered but collect tax on the difference of 5%.