Jon Greer, head of retirement policy comments:
“This show of Scottish power, while somewhat inevitable, exacerbates an already hideously complex tax system. It will cause short-term havoc as Scottish tax payers may end up receiving the wrong amount of pension tax relief. Worse still, if clarification on how it impacts pension tax relief is not given swiftly, it may hurt the success of auto-enrolment.
“The introduction of two new tax bands will mean that Scottish residents could be entitled to more or less than the basic rate tax relief on some or all of their personal pension contribution. However, it’s uncertain how they will either be charged or will be able to claim this relief. This ultimately rests with HMRC.
“In the worst case scenario those who fall in the 19% tax band, who are the most financially vulnerable, could end up receiving a letter from the tax man demanding more money because they’ve received too much tax relief. The prospect of such an unexpected demand could lead individuals to view their pension contribution in a negative light and this is the last thing that a Government would wish given pension savings rates are so low. We hope that they consider the practicalities of this change carefully.
“Currently, higher rate tax payers have to complete a self-assessment to claim their extra relief. However, this will not work for the new intermediate 21% tax band payer. HMRC will need to introduce a simple process and they will need to do so quickly.
“With Brexit being all-consuming, it is unlikely the Chancellor has much time to spend on shifts in Scottish income tax, but the Shadow Chancellor may be more interested. The 2017 Labour Manifesto suggested bringing the starting point of additional rate down to £80,000 and adding another rate at the point that the personal allowance was phased out (£123,000 in 2017/18).”
“The move by the Scottish also sets a path that Wales could follow meaning the minutiae of the tax system will become more intricate.”