Threshold frozen for higher rate Scottish taxpayers
6 Feb 2020
Scotland plans to raise the income tax threshold for basic and intermediate taxpayers in line with inflation from April 2020 but top earners will see the figures frozen
6 Feb 2020
However, it will freeze the higher and additional rates so that there is increasing divergence between Scottish and rest of UK taxpayers.
Public finance minister Kate Forbes MSP was delivering her first Budget, following the sudden resignation of finance minister Derek Mackay earlier today.
The Scottish Budget was delayed from December after the UK general election was called and had to be held before the UK Budget on March 11 due to legal requirements to set council and local authority budgets in Scotland before the new financial year.
During her maiden Budget speech, SNP minister Forbes was highly critical of the UK’s government decision to hold the Westminster Budget in March, which meant that ‘figures have had to be estimated before Scotland is told the final settlement figures under the block grant,’ Forbes said. ‘We have had to make assumptions about the Barnet block and take decisions about devolved tax policy without knowing what the wider UK tax policy is.’
The Scotland Act does not allow the devolved government to use draft budget figures and under the rules it has to legislate for any budget changes by 5 March 2020.
‘The Budget offers vision and leadership for our country,’ Forbes told MSPs at Holyrood, the first woman to deliver a Budget in Scotland, and also an England trained chartered accountant. ‘Last week the UK left the EU and entered the transition period for our country. This is not something Scotland wanted.’
‘We already have the most progressive income tax policy in the UK, with more than half of taxpayers paying less income tax in Scotland than elsewhere in the UK and taxing those with the ability to pay more. In 2017, the Scottish government made a commitment that there would be no increases to any of the rates of income tax this year.
‘To cement the progressivity of our tax policy we will increase the intermediate and base rate threshold, and higher and top rates will be frozen. So 56% of Scottish taxpayers will pay less than they did if they lived elsewhere in the UK.’
Scottish taxpayers will pay more income tax than they would in the rest of the UK once they start earning £27,243 due to the threshold change. However, they will benefit from UK wide changes to the national insurance contributions' threshold when it is raised to £9,500 in the forthcoming UK Budget, effective from 6 April 2020.
The base and intermediate tax rates will rise by inflation, while the higher rate threshold will be frozen at £43,430 and the top rate threshold at £150,000.
The income tax changes will increase the tax take by £51m in 2020/21. In total, Scotland will raise over £21bn in tax in 2020-21.
Alexander Garden, chair of Chartered Institute of Taxation’s (CIOT) Scottish technical committee, said: ‘While Scotland remains on a broadly similar tax path to last year, the immediate challenge facing the Scottish government will be ensuring that a majority can be found in the Scottish parliament to ensure that Scottish income tax can be collected in the new tax year.
‘However, the full picture remains unclear because we need to wait until the UK Budget on 11 March for confirmation of the impact of UK changes on Scottish taxpayers and the potential for further divergence.’
The devolved parliament does not have powers to change pensions or dividends tax as these decisions are taken for the whole of the UK by the Chancellor.
Garden said: ‘Scots who earn income from sources such as savings and dividends are not impacted by the [draft Budget] announcements as these are reserved to Westminster. They will have to wait until the UK Budget to know what income tax they will pay in the coming year.’
A new land and buildings transaction tax 2% band will be introduced with effect 7 February 2020 for non-residential leases only when income rental is above £2m. This will not apply for contracts entered into prior to 6 February.
In addition, the change will not apply to any further returns made in connection with the three‑year review, assignation or termination of a lease where the effective date is between 1 April 2015 and 6 February 2020.
This measure will raise an additional £10m in 2020‑21 and £11m a year thereafter. It is also forecast to raise an additional £2m in 2019‑20 due to its immediate effective date.
On business rates Scotland will implement a new intermediate property rate between £51,000 and £95,000, which will benefit 150,000 businesses who will be affected by the non domestic rates bill.
Scotland plans to invest £200m in partnership with local authorities through the Green Growth Accelerator, which allows local authorities to borrow to invest in projects which reduce emissions and boost growth.
The model follows the development of Growth Accelerators in Edinburgh city centre and Dundee Waterfront, which combine public and private investment to redevelop cities and regions.
Scotland will also spend an additional £2bn of infrastructure investment to support the delivery of the climate change plan to reach net zero emissions by 2045.
Forbes also announced a £10 per week payment for children in poverty - Scottish Child Payment - which will help an estimated 30,000 children by 2022, part of a £21m Scottish child support scheme. This is an additional payment on top of child benefit and will be paid initially to low income families with children under the age of six, with the first payments made by Christmas 2020. This equates to £520 a year per child, so over a six-year period, this works out at £3,120 per child.
Scottish tax rates 2020/21
|£12,501* ‑ £14,585||Starter rate||19%|
|Scottish basic rate||20%|
* Assumes individuals are in receipt of standard UK personal allowance
** Those earning more than £100,000 will see personal allowance reduced by £1 for every £2 earned over £100,000