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Scotland Sets Lesser Middle Income Tax Threshold

by Jason Gorringe, Tax-News.com, London

05 January 2017


The number of higher rate taxpayers in Scotland is set to rise from April 2017 under plans announced in the Scottish Budget to link increases in the 40p higher rate to inflation.

Up to now, Scottish workers have been subject to the same income tax treatment as the rest of the UK. But under devolution plans, Scotland was able to use its new powers to set income tax rates and bands for the first time at the Budget.

Under the change the threshold for paying higher rate tax in Scotland will no longer be linked to expected increases in wages but will rise "by a maximum of inflation in all future years of this Parliament."

The higher rate threshold in Scotland will be set at GBP43,430 (USD53,935) for 2017-18 compared with GBP45,000 (USD55,894) in the rest of the UK.

The lower threshold means that more people in Scotland will be classified as higher earners and subject to higher rate tax.

"I will protect low and middle income taxpayers at a time of rising inflation by freezing the basic rate of income tax.

"However, we cannot accept that at this time of austerity top earners should benefit from an inflation-busting tax cut. So I will limit the increase in the Higher Rate Threshold to inflation and not give a substantial real-terms tax cut to the top 10 percent of income earners."

Mackay said that the change will raise an extra GBP79m in revenue in 2017-18.

Under the Budget plans, the respective rate of income tax will be frozen the same at 20 percent, 40 percent, and 45 percent. The basic rate and additional rate thresholds will also remain the same as the rest of the UK at GBP11,500 and GBP150,000, respectively.

TAGS: Finance | tax | tax rates | inflation | Scotland

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