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Whether or not the Scottish electorate elects to remain part of the UK next week, the country’s tax regime will not be left untouched.
Would a No vote mean no change?
No. Limited legislative powers relating to tax have already been devolved to the Scottish government and more changes are afoot.
From April 2015, stamp duty land tax – a levy on the purchase price for a property – will be replaced by the Land and Buildings Transaction Tax, which was passed last year.
The rates and bands for the new tax are due to be announced later this autumn, but the Scottish government has said that it will be “more progressive” than the current UK structure, indicating that higher value transactions may be liable for higher rates of tax.
SDLT is structured on a so-called “slab” basis, where a tax rate (rising with the value) is payable on the total value of the transaction. The replacement tax will be structured on a sliding basis, with marginal rates payable above given thresholds, similar to income tax.
What other tax powers does Holyrood already have?
In addition to power over council tax rates, the Scottish government assumed limited control of income tax rates north of the border under the Scotland Act 2012.
From 2016, it will be able to vary the rate paid by Scottish resident taxpayers by up to 10 pence in the pound. In practice, this would work by reducing the basic, higher and additional rates of income tax by 10p, then a “Scottish rate” set by Edinburgh would be applied.
“We are going to see action on income tax whether or not Scotland becomes independent,” says George Bull, senior tax partner at Baker Tilly.
The devolved parliament already has the power to vary income tax paid by Scottish taxpayers by up to 3p in the pound, but has yet to exercise this right.
“What’s striking is how little [the Scottish government] have used their powers to change council tax rates . . . and that they haven’t changed income tax rates,” says Stuart Adam, senior research economist at the Institute for Fiscal Studies.
What would “devo-max” deliver?
Should a No vote sustain the union, it seems certain that the Scottish parliament will receive much more fiscal autonomy.
A late surge in support for the pro-independence campaign has encouraged the UK’s major political parties to pledge a greater transfer of powers in the event of a No vote.
Their visions of devolution differ, however. While Labour has proposed expanding Edinburgh’s power to vary income tax by up to 15p in the pound, the Conservatives are willing to offer Scotland full power over income tax rates and bands. The Liberal Democrats would go further, offering full power over income, inheritance and capital gains taxes.
What changes are promised by a Yes vote?
In its white paper on independence, Scotland’s Future, the Scottish National Party government outlined a handful of priorities for tax policy, including designing a more efficient and transparent tax system.
Prominently, it promises to preserve the value of the personal tax-free income allowance and of tax credits by implementing inflation-linked increases. The UK government’s proposals on tax allowances for married couples would be scrapped and air passenger duty would be halved.
In its paper, the Scottish government says, “there is no requirement to increase the general rate of taxation to pay for the services [currently enjoyed] in Scotland”. Not everyone agrees, however.
What may independence mean?
Upon independence, the Scottish parliament would assume formal legal responsibility for all taxes.
The extent to which changes to tax rates may be required would hinge largely on the success of the Scottish National Party’s policy to cut corporation tax by 3 percentage points and the accuracy of projected tax receipts from North Sea oil production.
“We have the problem of simply not knowing about any tax code changes,” says Ronnie Ludwig, a partner at chartered accountant Saffery Champness. “It is all very much in the melting pot.”
The costs of setting up a new tax system after independence have also been disputed. A report published in May by the Institute of Chartered Accountants in Scotland concluded that the costs of establishing a separate revenue and customs system would run into the high hundreds of millions. In its report, Icas noted that less complex changes in New Zealand recently cost about £750m.
And for Scots living down south?
The tax regime of an independent Scotland would apply to residents, and not to Scots living in the rest of the UK.
Should any Scot south of the border be considered as domiciled in Scotland, they may be able to claim non-domiciled status in the UK, argues Mark Davies, managing director of Mark Davies & Associates.
Under this arrangement, income and gains derived outside the UK – including in Scotland – would not be liable for UK income tax and CGT if these individuals register as non-domiciled. An annual remittance basis charge of £30,000 or £50,000 would be payable under these circumstances.