'Rich will run' if new tax power brought in

Published on Saturday 4 July 2009 19:54

FINANCIAL experts have warned that recommendations to give Holyrood sweeping new taxation powers will lead to people claiming that their main residences are in England to avoid punitive tax rates.

The transfer of radical new tax powers to Edinburgh, proposed by the Calman Commission, the body set up by the pro-Union parties to look at the constitutional settlement, has led to fears that wealthy Scots will chose to move south of the Border.

Rhona Irving, the head of tax at PWC Scotland, said: "Say for instance your business was in Edinburgh and you didn't have to go into work every day and your home and family were in England; this sort of thing would be doable and it would be quite legal."

The rate of income tax workers pay is determined by their residency and those earning in the UK are taxed at the UK rate. But the Calman Commission proposal calls for the Scottish Parliament to be given the power to decide over 10p of the tax rate in each band.

Currently, the basic rate of income tax paid by those earning up to 37,400 is 20p in the pound. Under Calman, Scotland would be required to set a basic rate of at least 10p in the pound. Apart from that, Holyrood could vary the rate as it liked. If it wanted a Scottish tax haven, it could set a rate that was below the UK rate of 20p. Conversely, it could go higher, and it is that scenario that has led to fears of a Scottish exodus.

"The UK government is already going to introduce 50 per cent tax for high earners and people are saying they are going to leave London and live on the continent and I think the same thing will apply here in Scotland," Irving said. "Perhaps a 1 per cent rise would not make that much difference, but a 5 per cent rise would make a huge difference.

"It might not be that England would be the destination of choice for these people. They may wish to go to Ireland or the continent. The UK tax rate is already penal and if you added 2 or 3 per cent in Scotland it would get even worse."

David Heald, an expert in income tax at Aberdeen University, said: "If you are mega-rich, a change in Scottish income tax may be enough to make them move, or to claim that they have moved. The issue is going to be one of residency. If you have homes in London and Glasgow, the issue is going to be which one is your residence for tax purposes."