Scotland to introduce two new tax bands

Income tax is to increase for Scottish taxpayers in the middle income bracket after finance secretary Derek Mackay announced radical reform in his Budget

He announced the creation of two new tax bands, starter and intermediate, splitting the old standard basic band into three. Under these plans, intermediate taxpayers earning between £24,000 and £44, 273, will pay 21%, up from 20%.

Starters – those on between £11,850 and £13,850 – will pay 19%, down from the previous 20%, paid for in part by the extra 1p in the intermediate rate and also from an additional 1p for those earning above £150,000, with the rate rising from 45% to 46%.

The basic rate will remain at 20%, but the creation of the intermediate and starter bands sees it narrowed from £11,850- £44,273 to £13,850- £24,000.

It is the first time Holyrood has utilised the devolved income tax powers, which it gained in 2016 and will come into effect from April 2018.

Away from income tax, Mackay said first-time buyers would be given full relief on Land and Buildings Transaction Tax on properties up to £175,000 from April 2018. The Scottish government will launch a consultation on the policy before introducing the first-time buyer relief in 2018-19.

Mackay's Budget statement was accompanied by the first economic assessments from the newly-formed Scottish Fiscal Commission, its equivalent of the Office for Budget Responsibility,

He said the country is facing ‘subdued’ growth over the next five years, growing at less than 1% per year until 2022 - lower than that predicted by other economists.

The five-year forecast predicts GDP growth will be 0.7% in both 2017 and 2018, eventually reaching 1.1% in 2022.

Scottish bands                      Band name           Scottish rates %

Over £11,850* – £13,850         Starter                  19

Over £13,850 – £24,000          Basic                    20

Over £24,000 – £44,273          Intermediate         21

Over £44,273 – £150,000**     Higher                  41

Above £150,000**                   Top                       46

* Assumes individuals are in receipt of the Standard UK Personal Allowance. ** Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

Susan Spash, partner at Blick Rothenberg, said: ‘While the powers for setting tax rates for earnings have been devolved, the powers for setting income tax reliefs and allowances as well as National Insurance thresholds remain with the UK. This contributes to increased complexity and potentially greater uncertainty for those living and working in Scotland.  There will be winners and losers for those close to the thresholds of rate changes.’

The Draft Scottish Budget 2018-19 is available here.

Report by Calum Fuller

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