The Scottish Budget 2017

Many Scottish taxpayers will suffer higher tax bills from next April following the SNP announcements on 14 December 2017.

The proposals were confirmed by Finance Secretary Derek Mackay as he presented his draft Scottish Budget at the Scottish Parliament in Edinburgh. He confirmed major reforms to the tax system, with the introduction of two new tax bands.

As a result of this we are now to be faced with a five band income tax system. A new “starter rate” of 19% is to apply to income between £11,850 and £13,850. The 20% basic rate will apply to income from £13,851 to £24,000 and a new 21% “intermediate rate” will apply to anyone with earnings over £24,000. An increased higher rate of 41% is to apply to income over £44,274 and an increased top rate of tax of 46% is to apply to income from £150,000.

These changes will result in a further gulf between income tax liabilities for Scottish taxpayers and tax payers who live in the rest of the UK. After taking into account the inflationary changes in bands, a Scottish individual earning £40,000 will be £70 worse off than they were in the previous tax year and will pay £140 more than other UK taxpayers. A Scottish individual earning £60,000 will be £15 worse off than before and will pay £755 more than those in other parts of the UK. Those earning £100,000 will be £415 worse off and will pay £1,155 more than other UK taxpayers, every year.

Whether an individual is a Scottish taxpayer will depend on where their home is located and not where they work. Therefore colleagues who live and work in our Border towns may find they pay more or less tax depending on which side of the border they live!

A further complication is that the Scottish rates of Income Tax do not apply to income from savings such as bank interest or dividend income and Scottish taxpayers will continue to pay tax on savings income at the same rate as the rest of the UK. This will include dividends from family company’s which will add further considerations to profit extraction methods and the structuring of businesses (I’m sure someone told me tax was going to be simplified?!).

It is also worth noting that there may still be further changes ahead as at the time of writing this article the budget is still to be voted through by MSPs. In his last budget Derek Mackay had planned to raise the higher rate threshold by the rate of inflation but agreed to freeze this in a deal struck with the Greens. If this happens again Scottish taxpayers will face a further increased tax burden!

Should you require further assistance with this or any other tax matter, Mairi Drummond of Rennie Welch LLP can be contacted on (01573) 224391 or by email at mairi.drummond@renniewelch.co.uk.