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  • January 2015
01

Devolution of powers to Scotland could become 'administrative burden', says IFoA

Open-access content 23rd January 2015

Organisation warns that increased devolution of powers to the Scottish Parliament will increase tax complexity.

Martin Potter, leader of the IFoA's Scottish Board, confirmed the IFoA welcomed the work undertaken by the UK government to devolve more tax-raising powers to the Scottish Parliament. However, he said: "It should be noted that having differing tax rates in Scotland versus the remainder of the UK will make a very complex system, especially in terms of tax relief on pensions savings."

Potter believed that the different tax relief could potentially be an "administrative burden" for employers with staff working cross-border.  He felt that this could also be complicated for individuals, particularly contractors working throughout the UK on a regular basis.

Potter also mentioned the complexity this could bring to payroll systems and the additional costs with software providers. "Additionally, through the new legislation, tax rules could end up being far more complex than currently envisaged," he said. "That complexity costs time and money. The government also needs to take into consideration lead-in times for changing payroll systems and the extra costs of two divergent systems being supported by software providers."

With the new pensions freedoms outlined in last year's budget, Potter warned that there could be individuals taking advantage of the system. "When considering further devolution it is important to avoid unintended consequences such as individuals 'gaming the system' by declaring residency in the country with the most beneficial tax rates," said Potter. "This could see people with large pension funds transfer between Scotland and the rest of the UK to whichever has the lower marginal rate."

Potter's comments came after yesterday's publication of draft legislation to devolve more powers to Scotland.

Meanwhile, professional services company Towers Watson felt that Scotland's tax powers "will force changes to the operation of pensions tax relief".

David Gordon, a senior consultant in Towers Watson's Edinburgh office, said: "Holyrood will not have the power to change the key features of pensions tax relief - these are reserved for the UK.  But it can indirectly change how much tax relief is worth by altering the tax rates that apply at different income levels."

This article appeared in our January 2015 issue of The Actuary.
Click here to view this issue
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