High-fliers could flee Scotland to dodge local income tax

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JOHN Swinney's plans for a local income tax in Scotland have suffered a new setback after senior tax experts warned some of the country's wealthiest business leaders might leave the country to avoid paying it.

Mr Swinney, the finance secretary, wants to replace council tax with a new income tax, to be initially set at 3p in the pound.

The plans sparked a storm of opposition with Labour, the Conservatives, some unions and the business community united in condemning the new tax. They claimed the regime would be unfair because it would not take into account unearned income and also insisted that there was a 1 billion "black hole" in the plans.

Mr Swinney said his plans were fairer than the council tax and he said he would continue to pursue them.

However, Russell Hills, head of tax in Scotland for accountants KPMG, yesterday said the new tax could prove so punitive on the highest earners that some would leave the country rather than pay it.

With the salary details of many business leaders available in their firms' annual accounts, it has been possible to work out what they would pay under the local income tax plans.

Sir Fred Goodwin, chairman of Royal Bank of Scotland, pays about 2,338 in council tax now. However, his annual salary of just under 4 million would see him liable for a new income tax bill of 120,000.

Martin Gilbert, the chief executive of Aberdeen Asset Management, would see his 2,391 council tax bill change into a 117,000 income tax bill, while David Murray, the Rangers football club owner, would have to find an extra 64,000.

And Brian Souter, the founder of bus company Stagecoach, who donated more than 500,000 to the SNP last year, would see his local tax liability go up from 1,930 to 28,750, if the Scottish Government succeeds in getting the local income levy on the statute book.

However, one winner would be Andrew Hornby, the chief executive of Edinburgh-based HBOS, who would pay nothing because he lives in Yorkshire.

This has led to warnings that others might move to England to avoid the new tax.

In the Budget last week, Chancellor Alistair Darling introduced a levy of 30,000 on "non doms" – wealthy individuals whose main businesses are in the UK but who are not registered to pay personal tax here.

KPMG's Mr Hills said the SNP plans risked the creation of a new group of such people in Scotland.

He said: "We as a firm would not comment on the politics but the plan (for a local income tax] could create a parallel tax system between Scottish workers and English-based colleagues." He added: "They (HM Revenue and Customs] are very tight on resources and dealing with a complicated tax like this would be hard for them to take on just now. It's difficult to see how any other organisation could take on this role as it would involve persuading people to divulge their earnings in a reliable way."

However, a Scottish Government spokesman said: "Those on the top income would pay more on average.

"Scrapping the unfair council tax and the hardship it causes is based on the need for social equity, a strong society and good public services, all of which benefit all who live here, regardless of income."