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Scotland’s tax regime will hit pension relief

The Government’s plans to create a separate Scottish income tax regime will raise problems for advisers and providers in calculating pension tax relief for clients, according to pension experts.

The Scotland Bill, which had its second reading in the House of Commons on January 27, proposes the creation of a Scottish income tax separate to the tax levied in England.

Under the plans, the Scottish Parliament would set income tax “at a level of its choosing” to meet its spending plans.

Hargreaves Lansdown pensions analyst Laith Khalaf says: “If the Scottish government sets a different tax rate, that would throw up problems for pensions because the tax relief you get depends on the rate of tax you pay.

“The question is, will we have to reclaim different rates of tax for Scottish taxpayers and English taxpayers?

“The impact of a new tax regime is potentially very far reaching. From the point of view of a pension scheme or an adviser or a provider, how do you identify where someone lives for most of the year?”

During the second reading of the bill, Secretary of State for Scotland Michael Moore said “technical issues of imple- mentation” are being looked at by HM Revenue & Customs.

The bill’s next reading will be the committee stage in the Commons on March 3.

Syndaxi Chartered Financial Planners managing director Robert Reid says: “Having a different set of income tax rules for Scotland just means you have got to know so much more about clients.

“It will make things more complicated and the more complicated you make financial services, the easier it is for people to make mistakes.”

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  1. David Trenner - Intelligent Pensions 3rd March 2011 at 7:39 pm

    An obvious simplification would be to stick with 20% tax relief at source. A Scottish Government might increase personal allowances, but everyone is entitled to get tax relief at 20% on their earnings even if they do not pay tax.

    Higher rate taxpayers will have to claim tax relief through tax returns at whatever rate our government sets – just as we currently do with rates set down south.

    I am sure that if Robert had not moved to a foreign country he would not find things so complicated!!

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