The key income tax measures increased the starter and basic rate bands by inflation, effectively maintaining the current rates of income tax for the coming year for the majority of taxpayers.

However, the higher rate threshold, which is paid by the top 15% of taxpayers in Scotland, will be frozen at £43,430 for the new tax year starting in April 2019, compared with the higher threshold of £50,000 from the 2019/20 tax year in the rest of the UK.

The tax changes mean that a higher rate taxpayer earning £50,000 would pay an additional £1,544 in tax compared with taxpayers resident in the rest of the UK, based on CIOT calculations.

The measures are forecast to deliver an extra £68m in tax revenue, helping to fill a £55m shortfall in additional funding committed to by the UK government in June 2018, Mackay said.

Moira Kelly, chair of the Chartered Institute of Taxation’s (CIOT) Scottish technical committee said: ‘The income tax changes will mean that from next April, based on our initial calculations, Scottish taxpayers earning more than £26,990 per year will pay more in tax than their peers south of the border.

‘The decision to freeze the higher rate threshold is unlikely to result in a rush to mitigate the higher rates of Scottish tax – for example by relocating to other parts of the UK or choosing to incorporate a business in order to benefit from lower rates of UK corporation and dividend tax.

‘But they do lend themselves to a growing perception that Scotland is taking a different tax tack to the rest of the country, particularly as the UK income tax regime moves in the opposite direction.’

Mackay also confirmed Scotland will implement a below inflation increase in the poundage comparable with business rates, meaning 90% of business properties in Scotland will be charged a lower rate than in the rest of the UK and 100,000 small businesses being lifted out of business rates all together.

Property tax

On the Scottish equivalent of stamp duty land tax (SDLT), Mackay increased the additional dwelling supplement for land and buildings transaction tax (LBBT) from 3% to 4% for the purchase of an additional property.

The lower rate of non-residential LBTT will be reduced from 3% to 1%, while the upper rate will increase from 4.5% to 5%. The starting threshold of the upper rate will be increased to apply for properties valued in excess of £250,000.

Non-residential rates and bands will come into force from 25 January 2019.

The Small Business Bonus Scheme and transitional support for businesses in hospitality will be maintained, and will also be available for office premises in Aberdeen and Aberdeenshire, as part of a £750m package of rates reliefs.

Scottish landfill tax (SLfT) standard rate will be increased to £91.35 per tonne and the lower rate will be £2.90 per tonne in 2019-20, in line with RPI inflation and landfill tax charges in the rest of the UK.

Mackay said: ‘Our decisions on taxation have resulted in a more progressive tax system, protecting those lower and middle income taxpayers, while raising additional revenue to invest in our public services and the Scottish economy. Those priorities will continue to be front and centre of our tax policy in the year ahead.

‘In addition, our rates of land and buildings transactions tax continue to protect first-time buyers and support people as they progress through the property market, with more than 80% of taxpayers paying no tax or less tax than in England.’

Report by Sara White

Tax essentials: Scottish Budget

Proposed income tax rates and bands for 2019-20

*Assumes individuals are in receipt of the standard UK personal allowance of £12,500. **Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.

LBTT rates and bands for residential and non-residential property transactions

*Non-residential rates and bands will come into force from 25 January 2019

The new ADS rate of 4% applies to the total price of the property for all relevant transactions above £40,000, and will be charged in addition to the rates set out in the table above.

Table to compare Scottish income tax for 2019/20 with Scottish income tax for 2018/19 and UK income tax for 2019/20

Source: CIOT
Note: A negative number means Scottish taxpayers are paying less in 2019/20 than they were in 2018/19, or than taxpayers in the rest of the UK (rUK); a positive number means they are paying more in 2019/20 than 2018/19, compared with rUK

Scottish Income Tax factsheet produced by Scottish government, issued 12 December 2018

Report by Sara White