Scottish Budget freezes higher rate threshold at £43,430

Higher rate taxpayers will face larger tax bills in Scotland from April 2019 as the Scottish Budget confirms plans to freeze the higher rate threshold for another year, reports Sara White

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.

Speaking as he delivered his Budget statement in the Scottish parliament, Finance Secretary Derek Mackay said 55% of Scottish taxpayers will pay less income tax next year than if they lived elsewhere in the UK, and 99% will pay less income tax than they do this year on their current income.

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

Income in range

Name

Rate

Above £12,500* – £14,549

Starter rate

19%        

Above £14,549 - £24,944

Scottish basic rate

20%

Above £24,944 - £43,430

Intermediate rate

21%

Above £43,430 - £150,000**

Higher rate

41%

Above £150,000** +

Top rate

46%

*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

Residential transactions

Non-residential transactions*

Non-residential leases

Purchase price

LBTT rate

Purchase price

LBTT rate

Net present value of rent payable

LBTT rate

Up to £145,000

0%

Up to £150,000

0%

Up to £150,000

0%

£145,001

to £250,000

2%

£150,001 to £250,000

1%

Over £150,000

1%

£250,001

to £325,000

5%

Over £250,000

5%

 

 

£325,001

to £750,000

10%

 

 

 

 

Over £750,000

12%

 

 

 

 

*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

Earnings

Scottish income tax 2019/20

Scottish income tax 2018/19

Difference between 2019/20 and 2018/19

UK income tax 2019/20

Difference between Scottish and UK 2019/20

£

£

£

£

£

£

10,000

0

0

0

0

0

15,000

480

610

-130

500

-20

20,000

1,480

1,610

-130

1,500

-20

25,000

2,480

2,620

-140

2,500

-20

30,000

3,530

3,670

-140

3,500

30

35,000

4,580

4,720

-140

4,500

80

40,000

5,630

5,770

-140

5,500

130

45,000

6,994

7,134

-140

6,500

494

50,000

9,044

9,184

-140

7,500

1,544

55,000

11,094

11,234

-140

9,500

1,594

60,000

13,144

13,284

-140

11,500

1,644

65,000

15,194

15,334

-140

13,500

1,694

70,000

17,244

17,384

-140

15,500

1,744

75,000

19,294

19,434

-140

17,500

1,794

80,000

21,344

21,484

-140

19,500

1,844

85,000

23,393

23,534

-140

21,500

1,894

90,000

25,444

25,584

-140

23,500

1,944

95,000

27,494

27,634

-140

25,500

1,994

100,000

29,544

29,684

-140

27,500

2,044

130,000

46,969

46,843

126

44,500

2,469

150,000

55,169

55,043

126

52,500

2,669

175,000

66,669

66,543

126

63,750

2,919

200,000

78,169

78,043

126

75,000

3,169

250,000

101,169

101,043

126

97,500

3,669

300,000

124,169

124,043

126

120,000

4,169

500,000

216,169

216,043

126

210,000

6,169

1,000,000

446,169

446,043

126

435,000

11,169

  

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

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