Thomson Cooper on the Scotland Budget 2018 / 2019

15th December 2017

Yesterday, the Scottish Government introduced their budget for 2018 / 2019. The central focus was on taxation and the first meaningful use of devolved tax raising powers by Holyrood.

The Finance Minister, Derek Mackay, introduced a five band income tax system, which includes a new starter rate of 19% on the first £2,000 of earned income. The existing base rate of 20% will remain on earnings up to £24,000 with earnings above this level taxed now at 21% up to the higher rate threshold of £44,273. Higher and Additional Rate Taxpayers will see an increase in tax rate by 1% to 41% and 46% respectively.

The impact of these changes varies depending up income levels. In general terms, those earning less than £33,000 will find themselves slightly better off than in 2017 / 2018. Those above this threshold will see an increased tax take, for example a taxpayer earning £75,000 will pay an additional £165 in comparison to that in 2017 / 2018.

There is a slight anomaly in the proposed budget however in that those earning £50,000 will be marginally better off. This is due to the increase in the higher rate threshold to £44,273 from £43,000. This anomaly may be challenged though as the budget still needs Holyrood approval.

From a UK perspective, the “tipping point” is £26,000. Those earning less than this amount have a lower tax take in Scotland than in the rest of the UK. Those who earn more than £26,000 will their find tax take higher in Scotland. As an example, an individual earning £120,000 in Scotland will pay £1,455 more tax than their counterpart elsewhere in the UK.

As indicated above, the minority SNP Government draft budget will need Holyrood’s approval, so changes may still arise.

The other change in the budget was to follow the lead of the UK Chancellor and introduce a Land and Building Transaction Tax relief for first time buyers of £175,000. This is significantly less than the UK first time buyer relief of £300,000 but reflects the comparative cost of property in Scotland versus the South East of England.

You will find a link to a summary of the key changes to the budget in our website below. As always the devil will be in the details, and the cross play between earnings taxed at Scottish rates and investment income which is taxed at UK rates may lead to planning opportunities.

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