Draft Scottish Budget 2021-22: Rollout, Recovery and Reopening
Susie Walker
Partner and Head of Tax
Scottish Finance Secretary, Kate Forbes, delivered a Scottish Budget announcement with a focus on building "a fairer, stronger and greener country."
Understandably the focus was on rebuilding the economy and continuing to support Scotland’s recovery through the COVID-19 pandemic and Ms Forbes laid out the Government’s tax and spending plans for the year ahead, including key announcements:
- No change in income tax rates
- Confirmation that the Land and Buildings Transaction Tax (LBTT) holiday will be lifted on 1 April 2021, but limited relief continuing for first time buyers
- The 100% non-domestic rates relief for property in retail, hospitality, leisure and aviation will continue for at least the first three months of the financial year.
The Budget sets out the tax and spending plans for the year ahead and these proposals now need votes from opposition parties to pass the measures before being agreed by 9 March 2021.
Income Tax
Income Tax Rates will remain unchanged and the starter and basic rate bands, as well as the higher rate threshold, will increase by CPI inflation (0.5%). The top rate threshold will remain frozen in cash terms at £150,000.
Scottish income tax policy proposals | ||
|---|---|---|
| Draft budget plans 2021-22 | ||
| Band | Income Range | Rate |
| Starter rate | over £12,570 to £14,667 | 19% |
| Basic rate | over £14,667 to £25,296 | 20% |
| Middle rate | over £25,296 to £43,662 | 21% |
| Higher rate | over £43,662 to £150,000* | 41% |
| Top rate | over £150,000** | 46% |
* Assumes individuals are in receipt of the Standard UK Personal Allowance
** The Top Rate remains at 2020-21 level. Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000
As a result, all Scottish taxpayers will pay slightly less Income Tax in 2021-22 than in 2020-21, based on their current income.
Land and Buildings Transaction Tax
In July 2020, it was announced that the threshold of the nil rate band for residential Land and Buildings Transaction Tax (LBTT) was to be increased to £250,000 from £145,000, until 31 March 2021. In this Budget announcement, it was announced that from 1 April 2021, the threshold will return to £145,000 with the exception of first time buyers, who will continue to be able to claim the first time buyer relief. This has the effect of raising the nil rate band to £175,000 and results in a reduction of tax of up to £600.
The Additional Dwelling Supplement (ADS) is payable, in addition to LBTT, on purchases of all relevant residential properties above £40,000. This will remain at 4%. Existing non-residential LBTT rates and bands for conveyances and leases will remain unchanged.
| LBTT Rates and Bands for residential conveyances 2021/22 | ||
|---|---|---|
| Band | Relevant consideration | Rate |
| Nil rate band | Not more than £145,000 | 0% |
| First tax band | More than £145,000 but not more than £250,000 | 2% |
| Second tax band | More than £250,000 but not more than £325,000 | 5% |
| Third tax band | More than £325,000 but not more than £750,000 | 10% |
| Fourth tax band | More than £750,000 | 12% |
Scottish Landfill Tax
Scottish Landfill Tax (SLfT) is a tax on the disposal of waste to landfill, charged by weight on the basis of two rates: a standard rate and a lower rate for less polluting materials.
The Scottish Government proposes to increase the standard rate of SLfT to £96.70 per tonne and the lower rate of SLfT to £3.10 per tonne with effect from 1 April 2021. This inflation-based increase ensures consistency with planned Landfill Tax charges in the rest of the UK.
Non-Domestic Rates 2021-22 (business rates)
The Basic Property Rate (‘poundage’) will be reduced to 49 pence, the same as in 2019-20.
In addition, the Scottish Budget commits to extending the 100% RHL relief for at least three months. (100% relief for the Retail, Hospitality, Leisure and Aviation sectors is referred to as RHL relief). The 1.6% universal relief that was also introduced as a result of COVID will end on 31 March 2021.
| Non-Domestic Rates 2021-22 | ||
|---|---|---|
| Basic Property Rate | 49p | Poundage |
| Intermediate Property Rate (rateable values between £51,001 and £95,000) | 50.3p | Poundage +1.3p |
| Higher Property Rate (rateable value above £95,000) | 51.6p | Poundage +2.6p |
The following reliefs will also be maintained:
- Charitable rates relief
- Disabled rates relief
- District heating relief
- Empty property relief
- Enterprise Areas relief
- Hardship relief
- Mobile masts relief
- New fibre relief
- Renewable energy relief
- Reverse vending machine relief
- Rural relief
- Sports club relief
- Stud farms relief.
Discretionary sports club relief will be subject to new statutory guidance, subject to parliament, from 2021-22, to ensure that it supports affordable community-based facilities, as recommended by the independent Barclay Review of non-domestic rates.
Due to COVID-19, the implementation of the requirement that self-catering properties be let for 70 days or more in order to be classed as non-domestic, as recommended by the independent Barclay Review of non-domestic rates, was initially delayed and will now be in place for 2021-22.
Air Departure Tax
The Scottish Government remains fully committed to introducing the Air Departure Tax (ADT) when a solution to the Highlands and Islands exemption issue has been found.
Aggregates Levy
The Scotland Act 2016 gave the Scottish Parliament the power to introduce a devolved Aggregates Levy in Scotland. The levy is paid on the commercial exploitation of aggregates, i.e. sand, gravel and crushed rock.
Outstanding state aid issues related to the UK Aggregates Levy have now been resolved and the UK Government has completed its review of the UK levy. Whilst a timeline has not yet been agreed for introduction of a devolved levy, the Scottish Government will continue the necessary work to allow for this, building on the research published in 2020.
It will be for the next Scottish Parliament to consider the legislation that would be required to provide for a devolved levy in Scotland. The UK levy will continue to apply in the interim.
VAT Assignment
The Scotland Act 2016 provides for receipts from half of the VAT raised in Scotland to be assigned to the Scottish Budget (known as VAT assignment). VAT assignment had been expected to commence with effect from April 2021, with full fiscal impact in the Scottish Budget 2021-22. Due to the current economic climate, the Scottish Government has agreed with HM Treasury to delay implementation of VAT assignment until the Fiscal Framework Review.
