The threshold for the higher rate of income tax will be set at a lower level in Scotland than in the rest of the UK.
This is a summary of the tax changes set out in the draft Scottish Budget 2017/18 presented to Holyrood by the Cabinet Secretary for Finance, Derek Mackay, as amended by negotiations to allow it to pass the stage 1 debate on 2 February. The Budget will remain draft until it is voted upon and approved by the Scottish Parliament in late February 2017. Tax matters are expected to be voted upon one week before the stage 3 vote for the remainder of the Budget.
There has been some discussion in the Scottish Parliament over delaying the draft Budget announcements until December, as it provides MSPs with less time to scrutinise the detail prior to the Budget being voted upon in February. As a concession, Mackay provided some high level information to MSPs in advance of the draft Budget 2017/18.
The Budget Bill was introduced to Parliament on 26 January 2017.
The highlights include:
no change to the basic rate, higher rate or additional rate of income tax;
the higher rate income tax threshold (personal allowance plus the basic rate band) for non-savings non-dividend income of Scottish taxpayers was initially set at £43,430 for 2017/18. Following negotiations with the Green Party to enable the SNP to get a majority to pass the stage 1 debate, the threshold has been frozen at £43,000;
no change to the additional rate threshold;
no changes to the land and buildings transaction tax (LBTT) rates or thresholds for residential and non-residential property;
Scottish landfill tax rates will rise in line with inflation in 2017/18;
the introduction of a Bill to devolve air passenger duty from 2018 (which is to be rebranded as ‘air departure tax’); and
the introduction of a Bill to provide a framework for devolved welfare powers.
There was a lot of talk prior to the Budget announcement concerning the impact that increasing the tax burden for Scottish taxpayers may have, including the cost to national employers of having to top up salaries of Scottish employees to keep them on an equivalent scale to their counterparts in the rest of the UK.
As was widely expected, Mackay announced one change which will take Scottish taxpayers out of line with their counterparts in the rest of the UK: the higher rate threshold (personal allowance plus the basic rate band) for non-savings income was to be raised in line with inflation to £43,430 in 2017/18. It will now be frozen at £43,000. This compares to a higher rate threshold for non-savings income of £45,000 in 2017/18 for taxpayers in the rest of the UK.
Whilst the change is apparently modest, due to the matters which are reserved by the UK government this means that there will be a number of mismatches for Scottish taxpayers, as follows:
Class 1 and class 4 NICs: The upper earnings limit for class 1 and the upper profits limit for class 4 are aligned with the higher rate threshold which applies in the rest of the UK. Therefore, employed Scottish taxpayers will face a marginal rate of 52% on earnings between £43,000 and £45,000 (Scottish higher rate of 40% plus class 1 primary rate of 12%). The marginal rate for the self-employed at this profits level will be 49% (Scottish higher rate of 40% plus class 4 main rate of 9%).
Savings income and dividend income: The income tax rates and thresholds for the savings and dividend income of Scottish taxpayers are the same as for taxpayers in the rest of the UK. This means the starting rate for savings, savings nil rate band and dividend nil rate band should be considered for Scottish taxpayers. It also means that Scottish taxpayers may be higher rate taxpayers for non-savings income but basic rate taxpayers for savings income.
Rates of CGT: The rate of CGT depends on the remaining basic rate band for income tax. As CGT is reserved, the higher rate threshold for CGT for Scottish taxpayers will remain aligned with the higher rate threshold for the rest of the UK. Therefore, it is possible to be a higher rate taxpayer in Scotland but have remaining basic rate band for the purposes of CGT.
TolleyGuidance news item by Andrew Ford (Barr & Ford Ltd).
The threshold for the higher rate of income tax will be set at a lower level in Scotland than in the rest of the UK.
This is a summary of the tax changes set out in the draft Scottish Budget 2017/18 presented to Holyrood by the Cabinet Secretary for Finance, Derek Mackay, as amended by negotiations to allow it to pass the stage 1 debate on 2 February. The Budget will remain draft until it is voted upon and approved by the Scottish Parliament in late February 2017. Tax matters are expected to be voted upon one week before the stage 3 vote for the remainder of the Budget.
There has been some discussion in the Scottish Parliament over delaying the draft Budget announcements until December, as it provides MSPs with less time to scrutinise the detail prior to the Budget being voted upon in February. As a concession, Mackay provided some high level information to MSPs in advance of the draft Budget 2017/18.
The Budget Bill was introduced to Parliament on 26 January 2017.
The highlights include:
no change to the basic rate, higher rate or additional rate of income tax;
the higher rate income tax threshold (personal allowance plus the basic rate band) for non-savings non-dividend income of Scottish taxpayers was initially set at £43,430 for 2017/18. Following negotiations with the Green Party to enable the SNP to get a majority to pass the stage 1 debate, the threshold has been frozen at £43,000;
no change to the additional rate threshold;
no changes to the land and buildings transaction tax (LBTT) rates or thresholds for residential and non-residential property;
Scottish landfill tax rates will rise in line with inflation in 2017/18;
the introduction of a Bill to devolve air passenger duty from 2018 (which is to be rebranded as ‘air departure tax’); and
the introduction of a Bill to provide a framework for devolved welfare powers.
There was a lot of talk prior to the Budget announcement concerning the impact that increasing the tax burden for Scottish taxpayers may have, including the cost to national employers of having to top up salaries of Scottish employees to keep them on an equivalent scale to their counterparts in the rest of the UK.
As was widely expected, Mackay announced one change which will take Scottish taxpayers out of line with their counterparts in the rest of the UK: the higher rate threshold (personal allowance plus the basic rate band) for non-savings income was to be raised in line with inflation to £43,430 in 2017/18. It will now be frozen at £43,000. This compares to a higher rate threshold for non-savings income of £45,000 in 2017/18 for taxpayers in the rest of the UK.
Whilst the change is apparently modest, due to the matters which are reserved by the UK government this means that there will be a number of mismatches for Scottish taxpayers, as follows:
Class 1 and class 4 NICs: The upper earnings limit for class 1 and the upper profits limit for class 4 are aligned with the higher rate threshold which applies in the rest of the UK. Therefore, employed Scottish taxpayers will face a marginal rate of 52% on earnings between £43,000 and £45,000 (Scottish higher rate of 40% plus class 1 primary rate of 12%). The marginal rate for the self-employed at this profits level will be 49% (Scottish higher rate of 40% plus class 4 main rate of 9%).
Savings income and dividend income: The income tax rates and thresholds for the savings and dividend income of Scottish taxpayers are the same as for taxpayers in the rest of the UK. This means the starting rate for savings, savings nil rate band and dividend nil rate band should be considered for Scottish taxpayers. It also means that Scottish taxpayers may be higher rate taxpayers for non-savings income but basic rate taxpayers for savings income.
Rates of CGT: The rate of CGT depends on the remaining basic rate band for income tax. As CGT is reserved, the higher rate threshold for CGT for Scottish taxpayers will remain aligned with the higher rate threshold for the rest of the UK. Therefore, it is possible to be a higher rate taxpayer in Scotland but have remaining basic rate band for the purposes of CGT.
TolleyGuidance news item by Andrew Ford (Barr & Ford Ltd).
