By Tim Sharp

LONDON (Citywire) - The outcome of the Scottish Parliament elections should be of more than passing interest to those in financial services and not just because the sector has more than its fair share of Celts.

A series of opinion polls predicts the Scottish National Party will become the country's largest party following the poll on May 3 and, provided it finds coalition partners, will enter government on a pledge to hold a referendum on independence.

A vote for separation would throw up all manner of complications as the potential for divergence in tax rates, as well as issues over domicile and residency, unwinds. It therefore also offers a possible tax planning bonanza for financial planners.

This is no small issue. There are thought to be 400,000 first and second generation Scots living in London alone. Around the same number of English-born adults live in Scotland.

Of course there are already key differences. Devolution in 1999 allowed the Parliament to vary basic rate income tax by up to 3p against UK levels which raised questions about tax relief on products such as pensions. But the power has never been used, leaving the debate rather academic.

There are, however, tangible differences over inheritance. Forced heirship rules in Scotland have in the past led to court battles as disinherited offspring attempted to prove that, while their parent was living across the border, they were still Scottish domiciled and the estate should stump up some cash.

More prosaically, Dave Lauder, director of Alpha Financial Advice, which has advisers in Carlisle and north of the border in Annan, says an existing headache is sorting out cross border house moves. In Scotland offers are binding while gazumping is possible in the south which can leave bemused clients seeking emergency bridging loans or rental accommodation.

The first challenge facing a nascent Scottish state would be in creating its own tax system. The UK has spent several hundred years amassing a complicated raft of tax laws. Observers expect this to be transplanted wholesale north of the border but a politician wouldn't be a politician without wanting to tinker with tax so expect that to change rapidly.