Draft Scottish Budget 2018/19: what you need to know
Susie Walker
Partner and Head of Tax
14 December 2017
In what he described as a "budget for fairness and growth", Scotland’s Finance Secretary, Derek Mackay, introduced a number of significant changes to rates and bands of income tax as a means of providing extra funding (amounting to around £164 million) to “protect our NHS and other public services, support our economy and tackle inequality in our society”.
We detail below some of the main changes announced which are, of course, subject to Scottish Parliamentary approval over the coming weeks.
Income tax rates
Two new bands and two adjusted bands will apply from April 2018 for Scottish resident taxpayers who have employment, pension, property and self-employment income. Investment income (interest and dividends) remain liable to income tax rates and bands set by the UK Government.
The proposed new rates and bands for 2018/19 are as follows:
| Scotland | Rest of the UK | |
|---|---|---|
| Personal Allowance | £11,850 | £11,850 |
| 19p Starter Rate * | £11,851 – £13,850 | N/A |
| 20p Basic Rate | £13,851 - £24,000 | £11,851 – £46,350 |
| 21p Intermediate Rate | £24,001 - £44,273 | N/A |
| 40p Higher Rate | N/A | £46,351 - £150,000 |
| 41p Higher Rate | £44,274 - £150,000 | N/A |
| 45p Top Rate | N/A | £150,000 + |
| 46p Top Rate | £150,000 + | N/A |
*Assumes individuals are in receipt of the Standard UK personal allowance.
The Personal Allowance is set by the UK Government.
From 2018/19, UK individuals will begin to pay 40% higher rate tax on income over £46,350 whilst those in Scotland will pay 41% higher rate tax on income over £44,273.
The impact of these changes is that lower earners will pay a little less tax and medium and higher earners pay progressively more tax as income levels rise.
So who are the winners and losers?
| Example Incomes (p.a.) | Impact of Scottish Government changes to rates and bands only | Impact relative to the rest of UK |
|---|---|---|
| £15,000 | £20 | £20 |
| £20,000 | £20 | £20 |
| £26,000 | £0 | £0 |
| £33,000 | -£70 | -£70 |
| £35,000 | -£90 | -£90 |
| £40,000 | -£140 | -£140 |
| £50,000 | -£240 | -£655 |
| £60,000 | -£340 | -£755 |
| £75,000 | -£490 | -£905 |
| £100,000 | -£740 | -£1,155 |
| £120,000 | -£1,040 | -£1,455 |
| £150,000 | -£1,359 | -£1,774 |
Land and Buildings Transaction Tax (LBTT)
Following the announcement in the UK Budget last month which will introduce a new relief for first time buyers, the Scottish Government confirmed their intention to introduce a similar relief. The relief will extend the 0% band of LBTT up to £175,000 for first time buyers, which offers a tax saving of up to £600.
A consultation will also be issued before the Scottish Government introduces the first time buyer relief in 2018/19.
In addition to the first time buyer relief, the Scottish Government has recently introduced a bill which provides retrospective relief for repayment of the Additional Dwelling Supplement (ADS) where a couple has jointly purchased a new home, but only one of the individuals owned the previous residence. In these circumstances, the ADS may have been payable because both parties could not meet the test of replacing their main residence. The problem was rectified for transactions with an effective date on or after 30 June 2017.
This new bill will allow these new remedial rules to have retrospective effect. We would expect that some couples will be due a tax repayment. We await to see what the process is for making these repayment claims.
Barclay Review reforms
Following the Barclay Review in September 2017, the following new policies were announced:
A “Business Growth Accelerator”, which ensures that any rates bill rises due to improvements/expansion of existing properties will not take effect until 12 months after the changes to the property.
A new relief for day nurseries.
An expansion of the Fresh Start Relief to include all property types; halving the period the property has to be empty to qualify (from 12 months to six months), and doubling the level of relief from 50% to 100% in the first year of occupation.
A move to three yearly revaluations from 2022, with valuations based on market conditions on a date one year prior.
The Scottish Government also accepted the remaining Barclay Review recommendations, save for the recommendation to curtail charity relief for universities. The relief is, however, removed for independent schools (other than special schools) from 2020/21.
Non-Domestic rates
In addition to the Barclay Review reforms noted above, the Scottish Government announced that:
In calculating the annual uplift in the Business Rates poundage, the Scottish Government will use the lower September 2017 CPI figure (3%), instead of RPI (3.9%).
The transitional cap for Aberdeen City and Shire offices will continue, save for the largest hospitality premises.
There is to be a 60% relief for hydro generation properties.
They will ensure that no rates are paid on new build properties until they are occupied. The tenant should then qualify for the Growth Accelerator for 12 months.
For more information on the draft Scottish Budget announcement and how it affects you, please don’t hesitate to get in touch with me, Susie Walker, or your usual Johnston Carmichael contact.
To read our analysis of the Autumn Budget, download our Autumn Budget Briefing.
