13 December 2018

The Scottish Budget - December 2018, what does this mean for Scottish Taxpayers?

Higher rate tax threshold will be frozen in Scotland and an increase in the Additional Dwelling Supplement for Land and Buildings Transactions

The Finance Secretary, Derek Mackay has delivered his proposed Scottish Budget for 2019/20.  As a result of this, the following proposals will be now be debated before a vote is taken early next year. 

Mr Mackay was thrown a challenge by the Chancellor, Philip Hammond when he delivered his UK Budget speech at the end of October.  This saw the acceleration of plans to give taxpayers a personal allowance of £12,500 and increase the higher rate tax threshold to £37,500, ensuring that an individual could have income of up to £50,000 before they paid higher rate tax.  Mr Mackay will pass on the increased personal allowance to Scottish taxpayers for 2019/2020, however he has confirmed that the higher rate tax threshold will be frozen in Scotland at its current rate of £43,430.  This means that a Scottish taxpayer earning between £43,430 and £50,000 will have a marginal rate of tax of 53% from 6 April 2019.

The bands for the starting rate of 19%, the basic rate of 20% and the intermediate rate of 21% will be increased in line with inflation.  This therefore means the following bands are proposed for 2019/20:

Up to £12,500 personal allowance, tax free income
Between £12,500 and £14,549 starter rate of 19%
Between £14,549 and £24,944 basic rate of 20%
Between £24,944 and £43,430 intermediate rate of 21%
Over £150,000 top rate of 46%

Other measures set out by the Finance Secretary include an increase in the Additional Dwelling Supplement for Land and Buildings Transaction which is paid by those acquiring residential property where they are already property owners.  This will increase from 3% to 4% with effect from 25 January 2019.  On the same date, it is proposed that the lower rate of non-residential Land and Buildings Transaction Tax will reduce from 3% to 1%, but the upper rate will increase from 4.5% to 5%.  The threshold at which the upper rate applies will also be reduced from £350,000 to £250,000.  The non-residential LBTT rates compared to 2018/19 will therefore be as below.

Non-residential rates 2018/19 2019/20
Up to £150,000 0% 0%
£150,000 to £250,000 3% 1%
£250,000 to £350,000 3% 5%
£350,000 upwards 4.5% 5%

The alteration of the thresholds means that purchasing non-residential property below £350,000 will result in a small saving in LBTT from 6 April 2019, whereas purchasing more expensive non-residential property will result in an increase in the tax due. 

Of the announcements made by the Finance Secretary, the failure to pass on the increased higher rate threshold in Scotland will come as the greatest disappointment to many business owners, who had expressed their concern prior to today that any further tax differential between Scotland and the rest of the UK would make it harder to attract top talent to the country.  This in turn will potentially damage the economy at a time of increased uncertainty in the coming months.