Since the last Scottish Budget was presented (December 2022), the Scottish Government’s room for manoeuvre has reduced.
Reports suggested that Shona Robison had to find £1.5bn in extra revenue, or spending cuts, to deliver a balanced budget. In order to fill part of this financial gap, the Scottish Government has announced increased Income Tax rates. However, the amounts expected to be raised by the increased tax rates are relatively modest.
The Scottish Government forecasts that the tax increases will raise £82m, although independent analysis suggests this may be a lower amount. The difficulty for the Scottish Government is that these changes only affect the highest earners, and there are very few high earning Scots to bear this burden. For example, the Additional rate has been increased by 1% to 48%, but there are only an estimated 40,000 taxpayers in Scotland who pay tax at this rate. Without action to increase the tax base by getting more Scots into work and paying tax, coupled with increasing the number of high paying jobs in Scotland, it may be difficult for the government to increase the overall tax take significantly.
We've covered below, the key announcements that impact our clients in Scotland. Scroll to read our analysis or click on the headings to navigate to your area of interest:
Scottish Rate of Income Tax (SRIT)
Land and Buildings Transaction Tax and Additional Dwelling Supplement
Non-Domestic Rates or Business Rates
Scottish Rate of Income Tax (SRIT)
The Scottish Budget announcement saw further divergence between Scotland and the rest of the UK as the Scottish Government further exercised its devolved tax powers. To recap, the Scottish Rate of Income Tax applies to non-savings and non-dividend income.
Inflationary increases were announced to the Starter and Basic rate tax bands, to £14,876 and £26,561 respectively. Tax rates at the Starter, Basic, Intermediate and Higher rates will remain unchanged. However, not only was the band frozen at which the 42% higher rate of tax kicks in at £43,662, dragging more taxpayers into the higher rate and boosting the Scottish government’s tax inflow by circa £307 million, a new Advanced tax rate was announced which essentially splits what was previously taxpayers falling into the Higher rate of 42%, into a new 45% rate for those earning between £75,000 and £125,140. For those earning over £125,140, the Top rate is now increased come 6 April 2024 from 47% to 48%.
The introduction of a new Advanced rate sees six income tax rates now operating in Scotland. Coupled with UK tax rates, there is significant complexity for a Scottish taxpayer in comprehending their overall tax burden.
The recent announcement by the UK Government in the Autumn Statement that the Class 1 National Insurance rate would decrease from 12% to 10% from 6 January 2024, and Class 4 reducing from 9% to 8% from 6 April 2024, has helped shelter the Scottish resident taxpayer from as great a tax increase in 2024/25 versus 2023/24 tax year, following the Scottish Budget.
This means that the tax bill for many Scottish taxpayers on their earned income and non-savings income (over which the Scottish Government has devolved tax powers) will be substantially higher than their English counterparts. For example, an individual earning:
- £50,000 will pay £1,542 more in tax than their UK counterpart
- £80,000 will pay £2,346 more
- £100,000 will pay £3,346 more
- £130,000 will pay £5,378 more
- £150,000 will pay £5,978 more
Scottish Income Tax Policy Proposals 2024-25
| Band | Income range | Rate (%) |
|---|---|---|
| Starter rate | £12,571 – £14,876* | 19 |
| Basic rate | £14,877 - £26,561 | 20 |
| Intermediate rate | £26,562 - £43,662 | 21 |
| Higher rate | £43,663 - £75,000 | 42 |
| Advanced rate | £75,001 - £125,140 | 45 |
| Top rate | Over £125,140** | 48 |
*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 Scottish Rate of Income Tax is particularly painful for middle earners, as the higher rate threshold kicks in at £43,663 in Scotland, but £50,270 in England. This substantially increases the tax bill for a Scottish taxpayer earning around the £50,000 mark as illustrated below.
When taking into consideration the interaction between Scottish Income Tax Rates and UK-wide National Insurance rates:
In Scotland, employment income between £43,663 and £50,270 is taxed at 54%, being 42% Income Tax and 12% National Insurance, reducing to 52% come 6 January 2024, due to the UK wide reduction to Class 1 National Insurance. Whereas in the rest of the UK, employment income is taxed at 32% between £12,570 and £50,270 (being 12% National Insurance and 20% Income Tax), reducing to 30% come 6 January 2024, due to the UK wide Class 1 National Insurance reduction.
Employed Individual – Scottish versus UK tax rates
| Gross income | UK Taxpayer net income (2023/24) | UK Taxpayer net income (2024/25) | UK Taxpayer change 2024/25 vs 2023/24 | Scottish Taxpayer net income (2023/24) | Scottish Taxpayer net income (2024/25) | Scottish Taxpayer change 2024/25 vs 2023/24 | Scottish Taxpayer 2024/25 vs UK Taxpayer 2024/25 |
|---|---|---|---|---|---|---|---|
| £10,000 | £12,187 | £12,187 | £0 | £12,187 | £12,187 | £0 | £0 |
| £20,000 | £17,660 | £17,771 | £111 | £17,681 | £17,794 | £113 | £23 |
| £30,000 | £24,510 | £24,771 | £261 | £24,488 | £24,760 | £272 | -£11 |
| £40,000 | £31,360 | £31,771 | £411 | £31,238 | £31,660 | £422 | -£111 |
| £50,000 | £38,210 | £38,771 | £561 | £36,657 | £37,229 | £572 | -£1,542 |
| £60,000 | £44,037 | £44,603 | £566 | £42,230 | £42,807 | £577 | -£1,796 |
| £70,000 | £49,837 | £50,403 | £566 | £47,830 | £48,407 | £577 | -£1,996 |
| £90,000 | £61,437 | £62,003 | £566 | £59,030 | £59,157 | £127 | -£2,846 |
| £130,000 | £79,366 | £79,932 | £566 | £75,907 | £74,555 | -£1,353 | -£5,378 |
| £150,000 | £89,966 | £90,532 | £566 | £86,107 | £84,555 | -£1,553 | -£5,978 |
Given the increased divergence, it will be interesting to see any behavioural responses amongst top earners as Scottish taxes continue to drift from the rest of the UK. With increased flexibility in working from home, there are fewer barriers to individuals moving to other parts of the UK where the Income Tax burden is less. The higher cost of Income Tax in Scotland may also impact on Scotland’s ability to attract the best talent, and with a declining working population, there is a risk these tax increases could erode Scotland’s income tax base over the longer term.
Finally, it's important to note that the new Advanced Rate introduced and increases to the rate do not impact on dividend income or savings income as these rates are set by UK Government.
Land and Buildings Transaction Tax and Additional Dwelling Supplement
No changes were made to the Land and Buildings Transaction Tax (LBTT) rates and bands of residential property, or to the Additional Dwelling Supplement (ADS).
There are no changes to the LBTT rates for commercial properties or leases.
First-time buyer relief is also continued, whereby the nil rate band for LBTT covers a residential property up to the value of £175,000.
ADS is payable when you purchase a second home, but the ADS is not payable on all purchases of second homes, as relief may be available in certain circumstances. In addition, where it is payable, it can be reclaimed if you are replacing your main residence (other conditions also need to be met). ADS will continue to be charged at 6%. However, following a recent consultation, the Scottish Government will introduce legislation to address certain areas of concern around ADS.
Rates and Bands
LBTT Rates and Bands for Residential Conveyances
| Band | Relevant consideration | Rate (%) |
|---|---|---|
| Nil rate band | Up to £145,000 | 0 |
| First tax band | Above £145,000 to £250,000 | 2 |
| Second tax band | Above £250,000 to £325,000 | 5 |
| Third tax band | Above £325,000 to £750,000 | 10 |
| Fourth tax band | Above £750,000 | 12 |
LBTT Rates and Bands for Non-Residential Conveyances
| Band | Relevant consideration | Rate (%) |
|---|---|---|
| Nil rate band | Up to £150,000 | 0 |
| First tax band | Above £150,000 to £250,000 | 1 |
| Second tax band | Above £250,000 | 5 |
LBTT Rates and Bands for Non-Residential Leases
| Band | Net present value of rent payable | Rate (0%) |
|---|---|---|
| Nil rate band | Up to £150,000 | 0 |
| First tax band | Above £150,000 to £2 million | 1 |
| Second tax band | Above £2 million | 2 |
Scottish Landfill Tax rates
The standard rate of Scottish Landfill Tax (SLfT) moves to £103.70 per tonne, and the lower rate of SLfT to £3.30 per tonne in 2024/25, maintaining consistency with UK Landfill Tax increases. These rates are effective from 1 April 2024.
The credit rate for the Scottish Landfill Communities Fund for 2023/24 will remain at a maximum of 5.6% of an operator’s tax liability.
Non-Domestic Rates or Business Rates
Non-Domestic Rates (NDR), or “business rates”, are administered and collected by local authorities who retain all the NDR revenue, but national NDR tax rates and reliefs are confirmed annually by the Scottish Government. The amount of tax due is based on the rateable value of the property multiplied by the Basic Property Rate (poundage), or the Intermediate, or Higher Property Rate, where relevant, minus any reliefs to which the property is entitled.
The last non-domestic property revaluation took effect on 1 April 2023, based on rental values as at 1 April 2022. There is now a three-yearly revaluation cycle with a one-year tone date, so the next revaluation is scheduled for 1 April 2026 based on values as at 1 April 2025.
The Basic Property Rate/poundage is frozen at 49.8p. The Intermediate and Higher Property Rates which are levied on properties with higher rateable values will increase to 54.5p and 55.9p respectively. The threshold for the Higher rate remains at £100,000.
| Non-Domestic Rates – type | |
|---|---|
| Basic property rate (poundage) | 49.8p |
| Intermediate property rate (rateable values between £50,001 and £100,000) | 54.5p |
| Higher property value (rateable value over £100,000) | 55.9p |
Available NDR reliefs
The Scottish Government has committed to maintain the Business Growth Accelerator and other reliefs including Day Nursery and Fresh Start reliefs.
In 2023-25, there will be 100% relief for hospitality businesses in island communities, capped at £110,000 per business.
The 90% renewables District Heating relief is extended until 31 March 2027. One of several announcements aimed at addressing the 'Climate Emergency'.
Enterprise Areas relief, currently due to end on 31 March 2024, will be phased out over the next two years.
The Budget also set out that it would maintain all other NDR reliefs in 2024-25.
Other taxes
Air Departure Tax
The Scottish Government advises it remains committed to introducing Air Departure Tax (ADT), various issues require to be progressed including their options to implement the tax in a way that protects the Highlands. The UK-wide Air Passenger Duty will continue to apply until ADT is implemented.
Scottish Aggregates Tax
The Scotland Act 2016 gave the Scottish Parliament the right to introduce a devolved tax to replace UK Aggregates Levy. The Aggregates Tax and Devolved Taxes Administration (Scotland) Bill was introduced to the Scottish Parliament in November 2023 and it is intended this new devolved tax will be introduced by 1 April 2026.
VAT Assignment
The Scotland Act 2016 allows for the first 10p of standard rate VAT receipt and the first 2.5p of reduced VAT receipts raised in Scotland to be assigned to the Scottish Government. UK Government and Scottish Government officials are currently working on how the assignment of part of the UK VAT revenues to Scotland will be operated.
Other new taxes
- The Scottish Government is seeking further powers to introduce a "Building Safety Levy", which the equivalent of a tax which already exists in England. This will be used to fund cladding remediation work.
- The Scottish Government is working on giving Councils the power to introduce a Cruise Ship Levy. This may be included within the Visitor Levy Bill which is due to go through Parliament in the next session.
- The Scottish Government will also consider the John Muir Trust's proposal for a Carbon Emissions Land Tax.
- Finally, the Scottish Government is working to re-introduce a non-domestic rates Public Health Supplement for large retailers in advance of the next Budget while also considering the introduction of an Infrastructure Levy by spring 2026.
Other measures
Help for children
The Scottish Child Payment will be increased in line with inflation to £26.70 (up from £25) with effect from April 2024.
Free school meals will continue for primary 1 - 5 schoolchildren, but the program will be also extended to children in primary 6 and 7.
Measures to help the economy
- The government is investing £66.9m to support the development of the offshore wind supply chain in Scotland.
- £358m has been allocated to install clean heating systems and make homes more energy efficient.
- The culture budget has been increased by £15.8m to support cultural organisations within Scotland. However, this is largely reversing a cut in the culture budget for 2023/24 and so is only a £2.1m increase compared with 2022/23.
- While Shona Robison mentioned support for farmers in her statement, the budget for “Agricultural Support” has been cut by £33.2m to £705.7m.
- Despite the potential growth in peatland and woodland carbon credits, the budgets for “natural resources and peatland” and Scottish Forestry (which provides grants for woodland creation) have been cut. Scottish Forestry’s budget is being cut from £103.7 to £70.1m.
