Figures in this article have been updated to reflect the changes between the draft version of the Budget and what was passed by Holyrood Parliament in February.
Complexity for Christmas?
You could sum up yesterday’s draft Scottish budget as giving us a portion of good news for some (less positive for others), topped with a sprinkling of complexity.
Small business owners and first time buyers are likely to be pleased with Derek Mackay’s announcements that the small business bonus scheme will continue, that CPI rather than RPI will be used to cap the inflationary uplift in the poundage rate of business tax and that there will be an increase in the 0% rate of Land and Buildings Transaction Tax from £145,000 to £175,000.
Whether or not you are happy with the changes made to income tax in Scotland will depend on your personal circumstances. A number of changes have been made to income tax bands and rates. New ‘starter’ and ‘intermediate’ rates have been introduced and the Scottish Government have used their tax raising powers to add 1p onto both higher and additional rate tax bands. For additional rate taxpayers this took their rate to 46% rather than the 50% that had been rumoured.
Income tax changes
It’s across income tax that the sprinkling of complexity is at its thickest. To try to clear that up, here’s a table that shows current Scottish income tax rates alongside proposed Scottish rates and rates for the rest of the UK for next tax year.
|Rate||Scotland (current rates)||Scotland (for next year)||Rest of UK (for next year)|
|19p Starter Rate||n/a||£11,851 – £13,850||n/a|
|20p Basic Rate||£11,501 – £43,000||£13,851 – £24,000||£11,851 – £46,350|
|21p Intermediate Rate||n/a||£24,001 – £43,430||n/a|
|40p Higher Rate||£43,000 – £150,000||n/a||£46,351 – £150,000|
|41p Higher Rate||n/a||£43,431 – £150,000||n/a|
|45p Top Rate||Over £150,000||n/a||Over £150,000|
|46p Top Rate||n/a||Over £150,000||n/a|
So what does this all mean?
It means that we have an increasingly divergent tax system in Scotland from the rest of the UK.
It has also been suggested that if you’re a Scottish taxpayer earning more than £24,000 you’ll have an even greater incentive to contribute to your pension because of the extra 1p of tax relief on every pound.
Effective planning for your retirement is a key aspect of a robust financial plan, as is being tax efficient through making use of the exemptions, reliefs and allowances available to you.
Making sure you are getting the right amount of tax relief on your pension contributions and paying the right rate of tax on pension income is a big part of that. But the new Scottish income bands being 1p different to the rest of the UK could make that more challenging. That’s because it may take pension providers and HMRC some time to get that right for you.
Working alongside your financial planner, our tax specialists at 1825 can help by completing a tax return to claim that 1% tax relief or making sure you have the right tax code in place.
Scottish draft Budget
There’s one other group who will be pleased with the Scottish Government’s announcements. Anyone needing to do last minute Christmas shopping online from 2021 (at the latest) will find that they have superfast broadband, even if they currently live in any of the current ‘non-spot’ dwellings in Scotland, thanks to a £600m investment that was confirmed yesterday.
As this was a draft budget, the proposals needed to be approved by the MSPs. The Budget was passed by Parliament in February meaning that these changes will come into effect from 6 April 2018. You can speak to your 1825 Financial Planner to understand how you might be affected, and if you don’t already have an adviser please do get in touch – we’d be delighted to help.
Tax rules can change and tax treatment depends on your individual circumstances. The value of an investment can go down as well as up and you may get back less than you paid in.