HM Insights

What the December Scottish Budget means for taxpayers in Scotland

Following earlier press reports stating that the Scottish Finance Secretary would not follow the UK government in a game of "tig" by raising the higher rate threshold to £50,000 in line with the UK threshold, Derek Mackay stuck to the plan yesterday as he delivered the Draft Scottish Budget.

He did announce an inflationary increase of the Starter rate and Basic rate tax bands, a welcome boost for lower earners, but stood his ground on the higher rate threshold and tax rates for 2019/20, both of which have been frozen. The changes are reported to result in little or no increase in the amount of tax paid for the majority of Basic rate taxpayers while raising £68m for the Scottish public purse.

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In fact, these changes will result in a Scottish taxpayer paying less tax in the 2019/20 tax year compared to the year before, and for those earning up to the Basic Rate limit of £24,944 a small saving will be seen when compared to the rest of the UK.

However, once taxpayers hit the intermediate rate the balance tips and Scottish taxpayers will pay more than those living elsewhere. For those up to the higher rate threshold (earnings up to £43,430) around £160 extra will be due, and for those earning £50,000 (the UK Threshold), over £1500 more will be paid by north of the Border.

The tax rates announced apply to the earnings of Scottish taxpayers only.

Rate and Band

2019/20

Starter Rate 19%

£12,501 - £14,549

Basic Rate 20%

£14,550 - £24,944

Intermediate Rate 21%

£24,945 - £43,430

Higher Rate 41%

£43,431 - £150,000

Top Rate 46%

Over £150,000

The Personal Allowance, being the amount you can earn tax free, was set by the UK Government in October at £12,500, and the rates of tax affecting investment income are also set by the UK Government so they are not affected by these changes, and UK Tax Rates will apply.

Scottish taxpayers, other than those with very straightforward affairs, will find their tax calculations complicated as a result of these multiple rate bands, and they should take care to ensure that 'S' codes are applied to their income.

LBTT– ADS - Scottish Properties

The finance secretary also announced an increase to the rate of the Additional Dwelling Supplement from 3% to 4%. This will affect taxpayers buying second homes from 25 January 2019.

He also announced changes to the Non Residential LBTT Land and Buildings Transaction Tax from 25 January as follows:

  • Up to £150,000 = 0%
  • Above £150,000 to £250,000 = 1% (A reduction from 3% to 1%)
  • Over £250,000 = 5% (The threshold has been reduced from £350,000 and a small increase in the tax from 4.5% to 5%)

He noted that the pre-budget rates would apply to contracts entered into before 12 December.

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