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If Scotland votes “Aye” – What are tax consequences for individuals?

By , Solicitor Advocate and Chartered Tax Adviser, and Olga Tabenko, Trainee Solicitor, both at Sykes Anderson Perry Limited, a firm of solicitors and chartered tax advisers in London, England

This article has been prepared by Sykes Anderson Perry Limited for information purposes only and does not constitute advice on any specific matter. We strongly recommend that you seek professional advice before taking or not taking action. No liability can be accepted by us for any action taken or not taken as a result of any information given or omitted.

There is very little on the practical tax consequences and possible tax planning opportunities if Scotland votes “Aye” for independence. Most of what follows is crystal ball gazing as the infighting between London and Edinburgh on entitlement to tax revenues is likely to be intense. What follows are some fairly random thoughts on what will turn out to be a major upheaval.

  • Scotland – England tax treaty. An independent Scotland will need to negotiate a tax treaty with England. This will probably follow the OECD model though expect a lengthy paragraph dealing with taxation of oil.
  • Scotland will need to negotiate new tax treaties with other countries. It may be that the UK treaty will continue to apply to Scotland’s relationship with third countries in the short term. As Scottish taxation will start to change quickly after any independence this should throw up tax planning opportunities. As an example will Scotland be viewed as a “third party country” when considering the tax position between England and another country even though Scotland is also treated as a party to the same treaty.
  • Scotland will be outside the EU. Will this mean that the treaties relating to tax enforcement and collection by member states of the EU will not apply?
  • Some EU countries give favourable tax treatment to residents of EU countries. France is an example. Will Scots selling homes in France as non- EU residents pay higher French capital gains tax?
  • Will it be possible for an English resident non-English domiciliary (UK resident – non-dom) to be taxed on Scottish income and gains on the remittance basis if Scotland is a separate country? In other words if the non-domiciliary keeps his income/gain in Scotland he pays no English tax?
  • Will Scottish assets be outside the scope of English Inheritance tax for a non-English domiciliary as a foreign asset? Could English assets be held through foreign Scottish companies?
  • Will there exceptionally be an Inheritance Tax treaty between the two countries?
  • What will be the tax position of border workers who live in one country and work in the other?
  • How will pension income from an English provider paid to a Scottish recipient and vice versa be taxed?
  • Will Scotland keep the UK’s Statutory Residence Test? This is a big change in the UK’s previous position and helpful in giving certainty to well off people planning moves for tax purposes.
  • Will Scotland keep the UK’s offshore taxation rules? Do wealthy Scottish residents who are beneficiaries of offshore trusts need to consider moving to England or would Scotland make it more attractive for them to remain in Scotland?
  • Will English businesses have to charge VAT to Scottish customers if Scotland is not part of the EU? If VAT is charged which country will collect it?
  • Could Scotland legally keep VAT if it is not part of the EU? Would it instead have to implement a similar Scottish sales tax? How will this work with supplies from and to EU countries?
  • Scotland could reduce its VAT rate so that prices for consumers in shops would actually fall. This would be made up by increasing tax elsewhere but would be a very popular move with the less well-off and head off any discontent after a yes vote.
  • Would moving a company’s registered office between England and Scotland trigger a tax charge? If so where would the tax be payable?
  • Competitive taxation between England and Scotland is inevitable. It will probably be similar to the tax competition between Swiss cantons. Scotland could for instance reduce its Inheritance Tax rate to attract older high net wealth individuals to live in the country.
  • Will there be a “big bang” date when all taxation rights will move to Scotland say on Independence Day or will it be phased. What will the transition rules be and which courts will decide disputes.
  • What will happen to historic tax disputes? Will they be heard in English or Scottish courts? Will the files and HMRC officers have to transfer the files to their English/Scottish counterparts?
  • Will England impose punitive 300% taxation on imported Scottish Haggis? Will any English people care?

September 2014

David Anderson
Solicitor Advocate, Barrister (Unregistered) and Chartered Tax Adviser
Olga Tabenko
Trainee Solicitor
Sykes Anderson LLP
9 Devonshire Square
London EC2M 4YF
Telephone 020 3178 3770