The Scottish Draft Budget 2018/19 – what happened?

Yesterday Finance Secretary Derek Mackay used his devolved powers over Income Tax to generate additional revenue for the Scottish Government by increasing the tax rates for higher earners. Some of this revenue will be used to alleviate the burden of Land and Buildings Transaction Tax (LBTT) for first-time buyers.

Two new Income Tax bands

The proposals are to maintain the basic rate of tax at 20% but to introduce two new bands. These are a starter-rate band for the first £2,000 of income above the personal allowance charged at 19%, and an intermediate-rate band charged at 21% for earnings between £24,000 and the higher-rate threshold of £44,273. The higher and top rates of Income Tax would each increase by 1% to 41% and 46% respectively.

These rates would not apply to savings income or dividend income which would remain taxed at the UK rate, as the ability to vary these rates was not devolved to the Scottish Government.

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

While some taxpayers will be better off under the new system, it could cause extra complications for many people who want to manage their personal tax bills. According to Stephen Parker, a financial planner and Partner from our Glasgow office: “It seems overly complicated and unwelcome at a time when families are facing higher inflationary pressures on income and huge amounts of uncertainty over our economy due to Brexit. The changes do not apply to savings and dividends, so Scottish taxpayers could be in a position where they are higher-rate taxpayers for non-savings, non-dividend income, but intermediate-rate taxpayers for their savings and dividends, which seems horribly messy.”

Land and Buildings Transaction Tax (LBTT)

The Scottish Government proposes to introduce a new LBTT relief for first-time buyers. The relief raises the zero tax threshold for first-time buyers from £145,000 to £175,000.

Those first-time buyers buying a property valued above £175,000 will also benefit from the relief on the first £175,000 of the purchase, which means all first-time buyers will benefit by up to £600. The Scottish Government will launch a consultation on the policy before introducing the first-time buyer relief in 2018/19.

We can help you with your personal tax bill

For more information on how the new Income Tax system could affect you, or for help managing your personal tax bill, please speak to your financial planner. If you are new to Tilney, you can book a no-obligation initial consultation to find out how we could help you. Simply call us on 020 7189 2400, email contact@tilney.co.uk or complete this form.