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The Government have confirmed how the tax varying powers of the Scottish Parliament will apply to personal pensions, FSAVCS and retirement annuity contracts.

Personal Pensions and FSAVCS

Any employee contributions to a personal pension or an FSAVC will continue to be paid net of UK basic rate tax.

If the Scottish Parliament were to exercise its powers and set a tax rate that differed from the UK one, individual employed Scottish taxpayers will receive any additional relief (or pay any tax due) through the PAYE system.

Th Scottish Executive have stated that they do not intend using the tax varying powers during the lifetime of the current Scottish Parliament. This makes it very unlikely that such powers will be used before 2004/5 tax year at the earliest.

It is presently unclear what the treatment will be for self employed individuals. They currently pay contributions gross as do all contributors to retirement annuities. In the latter case we know that the Government intend to exclude Scottish Variable Rate. Perhaps they have assumed that all personal pension contracts will fall within the proposed new &#34DC tax regime&#34 where all member contributions are paid net of basic rate tax (and that since any Scottish Variable Rate is unlikely to apply until 2004/5- well after the new DC tax regime should be in force – there is no need to cover the self employed).

What will be the position where contracting out rebates are paid to a personal pension? Presently the Government increase the employee portion of the rebate for basic rate tax. Will this allow for any Scottish Variable Rate in the future?

Retirement Annuities

The Inland Revenue have decided that Scottish Variable Rate will not apply to retirement annuities either in respect of tax relief on contributions or tax on pensions in payment.


It seems strange that retirement annuities have been singled out as being excluded from the Scottish Variable Rate tax. This will create a further difference between the future &#34DC tax retime&#34 schemes and retirement annuities which will need to be taken on board in advising clients subject to Scottish tax. Although the document did not cover member contributions to occupational schemes the consultation document issued last year(see our Bulletin dated 24/04/98 under the Miscellaneous subject heading) recommended that such contributions would continue to be collected under the &#34net pay&#34 (ie PAYE system) and would be picked up by Scottish Variable Rate tax in this way.


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