Scottish Budget 2018 roundup

The Scottish Finance Secretary Derek Mackay has delivered his draft tax and spending plans for the 2019/2020 tax year. In this article we give a roundup of the major announcements.

In a situation where the Government is so reliant on minority parties to push through legislation – and in Scotland legislation is required to enact the Draft Budget – Mr Mackay will always be in a difficult position. We also need to remember that he has control over Scottish Income Tax rates and thresholds (but not the Personal Allowance), and only tax relating to non-savings income. This broadly puts him in charge of tax on earned income, pensions and property income.

A growing tax gap between Scotland and the rest of the UK

To a certain extent, some aspects of the Scottish Budget are a reaction to the UK Budget. Mr Mackay had confirmed in advance that there were no plans to replicate the increased £50,000 threshold for higher-rate tax that will apply in the rest of the UK. However, freezing the threshold at £43,430 was unexpected, with most commentators predicting an inflationary increase.

This means that the gap between Scottish higher-rate taxpayers and the UK’s is £6,570, meaning a Scottish taxpayer could be paying up to £1,540 more tax than someone in other parts of the UK. Of course, this figure increases as income rises due to the higher Scottish rate of 41% as opposed to 40% for the rest of the UK, and the additional rate of 46% compared to 45%.

It is worth noting that the main rate of National Insurance (NI) is pegged to the UK higher-rate tax threshold, so Scottish taxpayers will have a marginal rate of tax and NI of 53% on the band of income between £43,430 and £50,000. The thresholds for the starter and basic-rate bands were increased by inflation.

Income Tax

Income Tax rates remain the same as those announced in the previous Budget. The starter and basic-rate bands are proposed to increase, but not the higher levels, as detailed below.

Scottish Income Tax rates and bands for non-savings non-dividend income

Land and Buildings Transaction Tax (LBTT)

With effect from 25 January 2019 the additional dwelling supplement (when additional properties to the main residence are purchased) will be increased from 3% to 4%.

Non-residential LBTT will be reduced at the lower rate from 3% to 1%, and the upper rate will increase from 4.5% to 5%.

The starting threshold will reduce from £350,000 to £250,000.

We hope you have found this Budget update helpful. Please do get in touch on 020 7189 2400 or contact@tilney.co.uk if you have any questions or would like more information.

Examples of how tax or tax relief may apply are based on our understanding of the proposed tax legislation. Whether any tax will be payable, at what level it is charged and whether you qualify for tax relief will depend upon individual circumstances and may be subject to change in the future.