HM Insights

What did the Scottish Budget of December 2017 mean for taxpayers?

Derek Mackay the Scottish Finance Secretary delivered the Draft Scottish Budget on Thursday 14 December announcing a new 5-band tax system for Scottish taxpayers.

The new tax rates for Scottish taxpayers from 6th April 2018 are:

  • 19% (starter rate): This will be applied to the first £2,000 of income above £11,850 (the personal allowance for 2018-19)
  • 20% (basic rate): This will be applied to all income between £13,851 and £24,000
  • 21% (intermediate rate): £24,001 to £44,273
  • 41% (higher rate): £44,274 to £150,000
  • 46% (top rate): over £150,000.

Mr MacKay considers that under this system lower earners, those earning below £33,000 will not be any worse off.

The rates of tax affecting investment income are set by the UK Government and as a result are unaffected by these changes. The rates paid on investment income will change in line with the UK rate bands, but notably the value of dividends you can receive without paying income tax will fall from £5000 to £2000 from 6th April 2018.

What does this mean in practice?

Scottish taxpayers, other than those with very straight forward affairs, will find their tax calculation is complicated as a result of these multiple rate bands. Those with significant investment income, multiple employments and/or pensions will need reassurance that their overall tax figure is correct once the new rates come into force. Any error could have a significant impact in the amount of tax being deducted from their earned income. All Scottish taxpayers should have a tax code beginning with the letter S, and they should make sure that their tax code is accurate for the new tax year 2018/19. 

The professional tax bodies have raised concerns about the new bands and the impact it will have on certain reliefs such as the transferable Marriage Allowance, Gift Aid Relief and Personal Pension Relief, all of which will be affected by the difference in rate bands for those in the north. The transferrable marriage allowance will be restricted for Scottish taxpayers, but potentially relief for Gift Aid and pension contributions will kick in earlier.

The Draft Budget proposed will need to be passed and approved by the Scottish Parliament before it can be implemented and the vote takes place on 19 February.

LBTT– Scottish Properties

The finance secretary also announced a cut in Lands and Buildings Transaction Tax (LBTT) for first-time buyers. With effect from 1 June 2018, LBTT has been abolished altogether for all first-time buyer purchases up to £175,000, producing a saving of up to £600.

This is much smaller than the stamp duty land tax cut for first-time buyers announced by the UK Chancellor for the rest of the UK in the Autumn Budget which abolished stamp duty for all first-time buyer purchases up to £300,000 (up to £500,000 in London and the South East).

Get in touch

If you think you will require assistance with your tax calculations, please get in touch.