Since April 2016, the Scottish Government has exercised its power under the Scotland Act 2012 to set its own rate of tax on the income of a Scottish taxpayer, and from 6 April 2016, Scottish taxpayers “benefited” from the lowest income tax rate in the UK, of 10%. The inverted commas have been used because in real terms, no one would actually have noticed any difference! The UK income tax rates of 20, 40 and 45% set by Westminster had been reduced by an equivalent 10% for Scottish taxpayers, so there was no real increase or decrease overall, certainly as regards the 2016-17 tax year.
The following tax year was slightly different however, and our MPs, dipping their legislative toesies deeper into the water, then made the historic decision to set separate Scottish income tax rates and bands for the first time. Tax rates were frozen, as were income tax bands, so whereas the rest of the UK saw an increased basic rate band limit of £45,000, in Scotland it remained at £43,000.
Whilst it might seem that a freeze is often a good thing, where the freeze is on allowances or tax bands then, unfortunately, it isn’t.
It would not have made any difference to anyone paying tax at the lower or basic rates in 2017-18, but it did mean that higher rate taxpayers in Scotland would hit the threshold – and therefore start paying the higher rate of tax – sooner than a taxpayer in the rest of the UK. So Scottish higher rate taxpayers began paying more tax than their English counterparts, to the tune of up to £400 (being the difference between the thresholds, at 20%) from 6 April 2017.
However, as if differing tax bands were not enough, our politicians then decided that they’d quite like to see what getting their whole foot wet felt like (Lord help us if they ever decide to go skinny-dipping!) and, with the passing of the Scottish Budget in February 2018, brought in five tax bands, as opposed to the three that the rest of the UK has to get by on. These are as follows:
Scottish tax rates will, for the first time ever, then, be appreciably different to those in the rest of the UK. As to the impact, well, according to the Scottish Government, compared to elsewhere in the UK, those earning less than £26,000 will pay slightly less income tax next year than if they lived elsewhere in the UK. Compared to 2017-18, for a given level of income, every Scottish taxpayer earning less than £33,000 in 2018-19 will pay less income tax than they did in the previous year; overall, 70% of Scottish income tax payers will pay less tax in 2018-19 compared to the previous year and, when considering current basic rate taxpayers, 81% will pay less (statistics from Scottish Government website).
However, whilst there is no doubt that many Scottish taxpayers will be better off than they were before, there is no getting away from the fact that a significant number will be worse off, not only in terms of their position in the previous year but also as regards a similar earning individual elsewhere in the UK.
Gird your loins, it’s all happening in a pay packet near you from 6 April 2018…
In this issue
- Fair instructions?
- The peasants have no bread
- Bad weather – adverse consequences?
- Defending children’s human rights in Scots law
- Scottish income tax – where are we now?
- Appreciation: Professor Emeritus Alexander John ("Alastair") McDonald
- Reading for pleasure
- Opinion: Gordon Addison
- Book reviews
- Profile: Paul Mosson
- President's column
- RoS welcomes new Keeper
- People on the move
- Fair instructions? (1)
- Law: not just a profession, but also a business
- Buying in and backing off
- Tax and the common touch
- Needs of the user
- Where did the money go?
- Five FOI tips every lawyer should know
- AI – the legal and ethical minefield
- Too long, too long?
- Times still a-changin' in '18
- An infrastructure levy for Scotland
- Tax changes to termination payments
- GDPR and the cloud
- Tide runs for lenders
- Passing on a pension to the right person
- Know your FTAs
- Scots to co-host ICW in Toronto
- Office of the Public Guardian: EPOAR and more
- Public policy highlights
- Our survey said...
- Q & A corner
- A profit without honour
- Appreciation: Professor Emeritus Alexander John ("Alastair") McDonald WS
- Ask Ash
- ASPIC finds its feet
- Pushing for change