By Ian Mackenzie

EDINBURGH (Reuters) - Scotland will hold an independence referendum on September 18, 2014, to decide if its five million people should end a 300-year-old union and leave the United Kingdom.

First Minister Alex Salmond, announcing the date in the Scottish parliament on Thursday, said a break of ties with London would give Scots the chance "to build a better country".

Salmond's pro-independence Scottish National Party (SNP) won a majority in the Scottish parliament in elections in May 2011.

But the SNP faces a hard battle to win the referendum - which will take place in the 700th anniversary year of the Battle of Bannockburn, a celebrated victory over the English.

Opinion polls put support for independence at about 30 percent of the Scottish electorate while 50 percent favor the status quo.

The SNP complains that the British parliament, where members representing Scotland are a small minority because England has a much bigger population of 53 million, does not have the interests of the Scottish people at heart.

The Scottish parliament, established in 1999, has limited powers in areas like health and education but the British parliament at Westminster in London still exercises control over important government spending decisions and areas like defense.

"The choice becomes clearer with each passing day - the opportunity to use our vast resources and talent to build a better country, or to continue with a Westminster system that simply isn't working for Scotland," Salmond said in a speech to announce the referendum date.

Voters will be asked a single question: "Should Scotland be an independent country?"

The SNP argues that North Sea Oil revenues combined with the local farming, fishing and whisky industries would enable an independent Scotland to prosper. Other parties in Edinburgh and the London government say both Scotland and the rest of the United Kingdom would lose out.

NUCLEAR SUBMARINES

Critics of the SNP say its sums do not add up because oil reserves are dwindling and Scotland would lose the disproportionately generous share of taxpayer money raised across Britain that it currently receives.

A secession by Scotland would also pose serious challenges to the remainder of the United Kingdom, such as what to do about its Trident nuclear submarine fleet which is based in Scotland.

It could also have ramifications for the United Kingdom's status in such bodies as the G7 group of industrialized nations and as a permanent member of the United Nations Security Council.

The leader of Scottish Labour, the main opposition to the SNP in the Scottish parliament, accused Salmond of setting a faraway date for the referendum to give himself time to turn the tide of public opinion, putting Scotland "on pause".

"The truth behind the delay is...Alex Salmond knows if he held the referendum now, he wouldn't just lose it, he would be routed," Johann Lamont told the parliament in answer to Salmond's speech.

Salmond is thought to be hoping for a patriotic surge in 2014, a big year for Scotland when it will host the Commonwealth Games and the Ryder Cup, and celebrate the Battle of Bannockburn anniversary.

Lamont accused Salmond of dodging tricky questions such as what control the Bank of England would have over an independent Scotland if it retained the British pound as its currency, as he advocates, or whether an independent Scotland would remain part of the European Union.

"We have moved a step down the road to cementing Scotland's place in the United Kingdom," Lamont said, predicting that the debate before the referendum would expose flaws in the SNP's arguments and persuade voters to say no to independence.

With its kilts and tartans, bagpipes and whisky, Scotland has a distinctive, if romanticized, culture. There has also been darker history of poverty, violence and ill health, notably in the largest city Glasgow, once an engine of the British Empire.

It already has many of the trappings of an independent nation such as its own flag, sports teams, and a history of achievements in science and literature.

Scotland and England have shared a monarch since 1603 and have been ruled by one single parliament in London since 1707. The SNP's Salmond has said an independent Scotland would retain Queen Elizabeth as its monarch.

The broad terms of the referendum were agreed by Salmond and British Prime Minister David Cameron last October.

As part of the deal, Salmond obtained the right for people aged 16 and 17 to take part in the referendum, a factor that could help the yes campaign as polls suggest younger people tend to be more favorable to independence.

(Writing by Estelle Shirbon; Editing by Angus MacSwan)