Scottish income tax bands are set to diverge further from the rest of the UK, and the rates and thresholds for land and buildings transaction tax will change in January.
The Scottish Budget for 2019/20 was unveiled on 12 December 2018 by Scottish Finance Secretary Derek Mackay.
Last year he introduced two additional tax bands, so Scottish taxpayers (who have their main home in Scotland) now pay income tax at five different rates on their non-savings non-dividend (NSND) income. Their income from savings, dividends and all their capital gains are taxed based on the rates and tax bands effective in the rest of the UK.
This divergence means that a Scottish taxpayer (or their agent) has to perform two parallel tax computations to work out the total income tax due and the CGT rate to apply. In practice those calculations will be performed by tax software but it’s a good idea to check the computer’s answer occasionally.
Same allowances
A Scottish taxpayer is entitled to the same personal allowance as taxpayers in the rest of the UK (£12,500 for 2019/20), which is withdrawn by £1 for every £2 of income over £100,000. The five tax bands for NSND income for Scottish taxpayers are proposed as:
| Band of NSND income in 2019/20 | Name of rate/band) | Income tax rated |
| £12,501 – £14,549 | Starter rate | 19% |
| £14,550 – £24,944 | Basic rate | 20% |
| £24,945 – £43,430 | Intermediate rate | 21% |
| £43,431 – £150,000 | Higher rate | 41% |
| Above £150,000 | Top rate | 46% |
National insurance
The power to set NIC rates and thresholds is not devolved to Scotland, so the UK-wide NIC rates apply to Scottish earners. Combining the NIC and income tax rates for a Scottish taxpayer produces some very odd marginal rates, as shown in this table:
| 2019/20Earnings in band £ | Scottish income tax rate
% |
NIC
% |
Total rate paid on band
% |
| 0 – 8,632 | 0 | 0 | 0 |
| 8,632 - 12,500 | 0 | 12 | 12 |
| 12,501 – 14,549 | 19 | 12 | 31 |
| 14,550 - 24,944 | 20 | 12 | 32 |
| 24,945 - 43,430 | 21 | 12 | 33 |
| 43,431 – 50,000 | 41 | 12 | 53 |
| 50,001 – 100,000 | 41 | 2 | 43 |
| 100,001 – 125,000 | 61.5 | 2 | 63.5 |
| 125,001 - 150,000 | 41 | 2 | 43 |
| Over 150,000 | 46 | 2 | 48 |
Who pays more?
It is clear that Scottish taxpayers with total income in the band £43,430 to £50,000 may feel particularly hard done by, as their marginal tax rate (including NIC) will be 53% compared to 32% payable on the same income for someone living south of the border.
Help for low earners?
The structure of Scottish tax bands does make Scottish income tax more progressive, in that the rich pay more. However, there is only a very small band of earnings (£12,001 – £14,549) on which a Scottish taxpayer pays 1% less than they would do on the same income had they lived in the rest of the UK.
LBTT up and down
When the stamp duty land tax (SDLT) supplementary 3% rate on second homes was introduced in England, Wales and Northern Ireland from 1 April 2016, Scotland was very quick to follow with an equivalent additional dwelling supplement (ADS) of 3%, imposed from the same date.
Last year, Philip Hammond introduced a permanent 0% rate of SDLT for first-time buyers on the first £300,000 of the purchase, effective from 22 November 2017. Scotland followed from 30 June 2018 with 0% rate of LBTT on the first £175,000 of the purchase acquired by first-time buyers. The details of these two reliefs vary, so beware.
Now Mackay may be setting the weather for property transaction taxes by proposing an increase in ADS to 4% from 25 January 2019. Will Hammond follow this move in the Spring Statement/Brexit Budget?
Mackay has also amended the LBTT thresholds for commercial property purchases from 25 January 2019, as shown below.
| Purchase price or lease premium
From 1 April 2015 |
Rate % |
Purchase price or lease premium From 25 January 2019 |
Rate % |
|---|---|---|---|
| Up to £150,000 | 0 | Up to £150,000 | 0 |
| £150,001 to £350,000 | 3 | £150,001 to £250,000 | 1 |
| Over £350,000 | 4.5 | Over £250,000 | 5 |
Why has Mackay chosen 25 January 2019 to make these changes? Well that is a bank holiday in Scotland, it being Burns’ Night.
About Rebecca Cave
Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.
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10 rates of total tax paid on earnings up to £150K=insanity.
The lunatics are running the asylum!
Thanks for the useful summary. However, as far as I am aware, 25 January is not a bank holiday in Scotland.