Scotland has signalled a move away from consistent tax rates with the UK in the latest draft Budget announcement stating that the higher rate threshold will not rise in line with wider UK rates while the stamp duty rates have been frozen
In the draft Budget, issued today, the Scottish government stated that 'it is committed to protecting low-income taxpayers and, as such, is proposing to freeze the basic rate of income tax at 20%. The Scottish government is also proposing to freeze the higher and additional rates at 40% and 45% respectively.
The higher rate of income tax threshold will increase by inflation to £43,430 in 2017-18. However, this will be lower than the current UK higher rate threshold for 2017/18 set at £45,000.
The Scottish government will give priority to the protection of public services over a substantial tax cut for individuals with the top 10 per cent of incomes. The Scottish government will not cut tax for higher rate (40p) taxpayers through above inflation increases in the higher rate threshold.
The Scots expect to raise £11.8bn from income tax in 2017/18, rising to 12,912bn by 2020/21.
This increase in the higher rate of income tax threshold, when combined with the increase in the personal allowance, means that low and middle income taxpayers will be protected at a time of rising inflation, while priority is given to the protection of public services over a substantial tax cut for the top 10 per cent of taxpayers.
Scottish Income Tax Rates (SIRT) and bands
Scottish basic rate 20% Over £11,500* – £43,430
Scottish higher rate 40% Over £43,430 – £150,000 [rUK £45,000 per year 2017/18]
Scottish additional rate 45% Over £150,000 and above**
*Assumes individuals are in receipt of the Standard UK Personal Allowance.
**Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.
The net impact on the Scottish budget after the Block Grant Adjustment (BGA) relating to income tax is made, is £79 million in additional revenue for 2017-18. This reflects the policy choice of increasing the higher rate of income tax threshold in line with inflation, which means that more revenue is raised in Scotland than would have been under the UK government’s tax policy of increasing the higher rate threshold faster than inflation.
The Scottish government can also confirm that the higher rate of income tax threshold will increase by a maximum of inflation in all future years of this parliament.
From 2017-18, the Scottish parliament will be able to set the rates and bands for all Scottish non-savings non-dividend (NSND) income tax.
Land and Buildings Transaction Tax
On the land and buildings transaction tax (LBTT), the equivalent of stamp duty land tax in the rest of the UK, rates have been kept on hold for 2017/18 at their current 2016/17 levels.
Income tax remains a shared tax. The responsibility for defining the income tax base, including setting or changing income tax reliefs, continues to rest with the UK Government. HMRC will remain responsible for the collection and management of Scottish income tax.
The draft Scottish Budget 2017/18 is available here