Tax changes '˜will penalise Scots wanting to cash in their pension'

Scots who decide to 'cash in' their pension face paying thousands of pounds extra as result of Scotland's new income tax system, the Scottish Conservatives have claimed.

Finance Secretary Derek Mackay delivering his draft Budget for 2018-19. Picture: PA
Finance Secretary Derek Mackay delivering his draft Budget for 2018-19. Picture: PA

Under plans announced by George Osborne when he was Chancellor, anyone in the UK aged 55 or over can take out their full pension pot, with 75 per cent of the cash taxed as income.

Yesterday the Conservatives said Finance Secretary Derek Mackay’s decision to increase tax for those earning more than £33,000 means people in Scotland now face higher tax charges on that pension than they would face if they lived elsewhere in the UK.

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The average pension pot for somebody aged 55-65 is currently £105,000. Scots with such a pension will have to pay an extra £527 if they decide to cash out.

The tax penalty rises for those with higher pensions. According to Conservative analysis, Nicola Sturgeon, who currently has a £241,000 pension pot, would have to pay an extra £1,801 if she decided to claim her pension today.

Shadow finance secretary Murdo Fraser MSP said: “The Nat tax will hit Scots during their working life, and now we learn that it could hammer them when they retire too.

“This is a classic unintended consequence of tax rises and shows that the SNP haven’t thought through these half-baked plans. The SNP’s message to Scots who decide they want to access their pension pot is – don’t aspire to save, because the Scottish Government is coming for you.”

He added: “Scotland’s tax powers are there to be used responsibility to help grow the Scottish economy. The SNP is using them to wreck it.”

A Scottish Government spokesman said: “Our new, fairer, income tax policy will protect the 70 per cent of taxpayers – including pensioners – who earn less than £33,000 a year and ensure they pay less tax next year whilst asking those earning more than £33,000 to pay a proportionate amount more.

“Operating Scottish income tax is the responsibility of the UK Government and HMRC have made clear they will ensure the mechanisms for providing pensions tax relief continue to work effectively for Scottish pension savers.”