Scotland’s last strike at economic independence came in 1698, through the picks and shovels of the doomed Darien scheme, as a brave group of settlers attempted to build a canal in a region that is now part of Panama. The lack of funding from London, reluctant to provoke imperial Spain, put paid to Caledonian ambitions to become a global power, and nine years later economic dependence became political unity under the 1707 Act of Union.
Some 307 years after that, Scotland may be about to strike out again if the Yes campaign is successful on 18 September — and if it is, we could see a rush of HNWs north of the border.
For a start, an independent Scotland could design its own tax system, which would appeal to anyone who has dealt with Whitehall’s notoriously arcane fiscal matrix, not least with rates which could undercut England’s. ‘If you’re designing a new tax system,’ says Kate Davies, tax specialist at Wedlake and Bell, ‘everyone is going to be looking at keeping it simple as a priority, whereas with one that’s been built up over time there are always going to be more changes that have been made and therefore it’s more complicated.’
A Scottish government spokesperson echoed the sentiment: ‘We plan to introduce a simpler Scottish tax system after independence, which reduces compliance costs for taxpayers and minimises the opportunities for tax avoidance.’
The ease with which UK citizens might be able to claim tax residency in Scotland means that, should Edinburgh decide to undercut UK rates, it could see a windfall. For those in the City, a retirement among the glens and bens may seem attractive: ‘The Scottish rate of income tax will apply to income from employment, but also rental income and payments out of certain trusts,’ says Margaret Connolly, tax specialist at accountancy firm Reeves.
Indeed, if you’re savvy enough you can retire to Antigua rather than Auld Reekie and still benefit: the Statutory Residence Test states that 183 days must be spent in the UK, with the majority of this (92 days or more) in Scotland, to claim tax residency. As Connolly points out: ‘Certain individuals could even manage to get this down to sixteen days, meaning just nine would need to be in Scotland.’
However, at the moment tax advisers seem particularly wary of that most poisonous of variables: politics.
‘The starting point for how that [tax change] actually materialises is often a political decision,’ says Davies. ‘Where they sit within the world economy will have an impact on the taxes that they set, their exchange rate and their sources of income. The most important thing is to be aware there is change on the horizon — to be forewarned is to be forearmed.’
One thing is clear so far: banks and financial institutions in Scotland are remaining tight-lipped on their predictions and strategies in case of independence. RBS, Coutts, Adam & Co and Aberdeen and Scottish Widows all declined to comment for this article, although an inside source did say: ‘They’re shit-scared. There’s basically an unwritten rule that no one talks about Scottish independence at RBS because it’s such a divisive issue.’
In these circumstances, as much as Alex Salmond may want to attract HNWs, he will also have to play to his constituency, which is unlikely to welcome coddling of or concessions to English carpetbaggers. The SNP has been silent on a mansion tax so far, but it could easily be instituted for arriviste lairds. And Scotland already has a system of inheritance where you are compelled to leave certain proportions to certain heirs, which Salmond is unlikely to change merely to make Scotland a more desirable tax residence.
Another area of concern for any budding lairds of the manor is property tax. A recent Scottish government-commissioned report identified that arable land has doubled in price in the last decade and says that ‘there is no clear public interest case in maintaining the current universal exemption of agriculture, forestry and other land-based businesses [including estates] from non-domestic rates.’
These questions of tax and testament need to be seen against Salmond’s broader economic vision for an independent Scotland. If you think his government will turn it into debt-ridden Spain rather than fast-growing Singapore, you won’t want to emigrate there even if the tax regime is attractive. So what would Salmond’s Scotland look like?
He’s ambitious, we have to give him that: a Scottish government spokesman told Spear’s that Scotland will be ‘the fourteenth wealthiest country in the OECD, ahead of France, Japan and the United Kingdom [eighteenth]’. However, the SNP’s statistics cite GDP per head rather than total GDP, which is the standard measuring stick for an economy’s size.
Moreover, they make no mention of how heavily coloured the figures are by North Sea hydrocarbons, predicted to run dry in five years; and in the shadows behind all this is the considerable question of what to do about the substantial national debt an independent Scotland would be saddled with from day one, estimated to be £137.5 billion.
The assumption is that an independent Edinburgh would seek to raise taxes to counter such a debt burden. However, the SNP has been quiet on tax, its most eye-catching claims being ‘halving air passenger duty, with a view to abolition of the tax altogether, and setting out a timetable to reduce corporation tax by up to three percentage points below the prevailing UK rate’.
Westminster doesn’t see these cuts as viable: ‘The Scottish government needs to explain how an independent Scotland could balance a 3p cut in corporation tax, a reduction in air passenger duty, a more generous welfare system and the creation of an oil fund when their own figures reveal that Scotland ran a deficit of £8.6 billion, including an illustrative geographical share of North Sea revenue, in 2012-13,’ said a spokesman for Alistair Carmichael MP, secretary of state for Scotland.
There is, though, a twist. Even if Scotland does not become independent, as of 2016 the Scotland Act 2012 will grant Edinburgh considerable tax-raising powers, says Margaret Connolly: ‘Even if the referendum produces a No vote to independence, from April 2016 there will be a new Scottish rate of income tax [SRIT]. That reduces each of the UK tax rates by 10 per cent. So, for example, the current 40 per cent band will be 30 per cent in Scotland.’
Currently the real winners seem to be tax advisers, who look wset to make hay (and money) from financial uncertainty. It’s unlikely that following a Yes vote Scotland would transform overnight into a tax haven, but the room for manoeuvre granted by independence or the SRIT after 2016 will see tax alternatives within Britain. Such leverage could well encourage a fair few retirees to dust off the family tree and contemplate a move back to the Old Country — or perhaps equally a debt-laden Alba looking to tax its wealthier residents may spark the Range Rover caravan south.