Scottish income tax and its impact on pension schemesThursday, February 17th, 2011
The Scotland Bill makes provision for the introduction of different rates of income tax from those applicable in the rest of the UK. The Bill defines the way in which the Scottish government will be able to set different rates of tax and also defines a “Scottish taxpayer”.
The latest issue of the Pension Schemes Newsletter clarifies a number of issues as well as explaining the discussions that are under way with representatives of the pension sector. The following is an extract from the Newsletter.
HMRC will be identifying who are Scottish taxpayers, will notify those individuals and issue a Scottish tax code to them if they are on PAYE.
Income tax relief on pension contributions is given at an individual’s marginal rate so, if UK and Scottish rates diverge, the marginal rates will diverge. HMRC has therefore set up a Pensions Technical Group, including representatives of pension providers and insurance companies north and south of the border, to explore with them the issues that could potentially affect different types of registered pension schemes and quantify the impact on both HMRC and those involved in administering pension schemes. The Group has begun to discuss issues common to all pension schemes and with particular emphasis on the relief at source method of claiming tax relief.
Ministers will consider later in 2011 whether tax relief for members of registered pension schemes who are Scottish taxpayers should be at the Scottish or UK rate and how any administrative burdens could be minimised. However, HMRC is aware of the complexity affecting the net pay arrangements should tax relief instead be given (potentially) at a different rate to that at which an individual is liable to pay tax on their income, and this will also have to be taken into account.