The Scottish Budget took place last Wednesday but was rather overshadowed by events at Westminster that day, and perhaps therefore failed to attract much attention. However there are some key points that are worthwhile reviewing.
The announcements around Income Tax were much less dramatic than in the previous year, when we had the introduction of several new bands and rates for Scotland. The main measure this year is that the higher rate threshold is unchanged, thus increasing the differential between Scottish and English taxpayers.
This means that Scottish taxpayers earning between £43,430 and £50,000 will now pay a higher rate of income tax than those in England by some 21%.
This becomes more of a disadvantage when we then consider the difference between the higher rate of Scottish income tax and National Insurance Contributions (NICs). This means that someone earning a salary in the range of £43,430 to £50,000 will pay 41% in income tax and a further 12% in NICs on the top slice of their earnings, equivalent to a marginal tax rate of 53%.
Those earning up to £26,990 should pay less income tax than other UK taxpayers.
However, someone earning £50,000 will pay more than £1,500 per annum in additional tax, increasing to almost £200 per month for those earning £120,000.
It remains to be seen whether this will drive any behavioural changes, such as a move to incorporation and pay by dividends.
The rates and bands for non-residential buildings are to change, with the lower rate reducing from 3% to 1% but with this band reducing in its scope by half. The higher rate will increase from 4.5% to 5%. The net outcome is that transactions for less than £350,000 will cost less in LBTT, whereas those for above that amount will cost more.
The other proposed change relates to residential property and is to increase the Additional Dwelling Supplement (‘ADS’) from 3% to 4%. ADS is intended to apply to all purchases of residential property other than the purchase of a main residence, and this increase is targeted to further support first-time buyers or penalise the buy-to-let sector, depending on your point of view. On the purchase of a £200,000 property, the LBTT cost will be £8,000 higher for someone acquiring the property as an investment or second home.
The Scottish Budget is subject to a final vote in February 2019 and may be amended before this given it requires the support of other parties to pass through the parliament. The Scottish Government have also said they may revisit matters in the event of a no-deal Brexit.
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Full details of the draft budget announcement can be found on the Scottish Government’s website here.
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The information in this blog should not be regarded as financial advice. This is based on our understanding in December 2018. Laws and tax rules may change in the future.