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Scotland To Retain Personal Tax Rate, Despite New Powers

by Robert Lee, Tax-News.com, London

18 December 2015


Scottish Finance Minister John Swinney has announced that the Government will not vary the Scottish Rate of Income Tax (SRIT), meaning there will be no overall change in the level of tax individuals pay.

The Scotland Act 2012 gave the Scottish Parliament the power to set a SRIT from April 2016. It provided that, in the case of Scotland, the UK Government would deduct GBP0.10 in the pound from the basic (20 percent), higher (40 percent), and additional (45 percent) rates of income tax. The Scottish Parliament would then be able to levy a Scottish rate that would apply equally across these three main bands. That rate would be applicable on top of the relevant UK rate(s). If the SRIT were not set at 10 percent, it would introduce two different income tax regimes in the UK.

In his 2016-17 Draft Budget, Swinney announced that the SRIT would be set at 10 percent for 2016-17. He explained: "Where we have the freedom to shape a taxation system that is fair and proportionate to the ability to pay, we have created a tax system that is progressive and helps those who most need it. I have today also proposed the first Scottish Rate of Income Tax and setting a [10 percent] rate means that there is no change to the overall tax rates paid by Scottish taxpayers."

"The income tax powers we currently have do not allow us to make income tax fairer, and I will not penalize the poorest taxpayers. This is the best decision possible with severely restricted powers."

The SRIT will apply to UK taxpayers whose main residence is in Scotland. Receipts from the SRIT will be collected by UK tax authority HM Revenue and Customs (HMRC) and paid to the Scottish Government.

Swinney also announced that the devolved Land and Buildings Transaction Tax (LBTT) will be maintained at current levels. The Government will however introduce a LBTT "second-homes" supplement on purchases of additional residential properties, including buy-to-let properties. A three percent rate will apply to the total price of properties costing more than GBP40,000.

This follows UK Chancellor George Osborne's announcement that he would establish a further, three percent stamp duty land tax (SDLT) on the purchase of additional residential properties costing over GBP40,000.

Swinney said: "Our objective is to make sure that first time buyers have the greatest possible chance to enter the housing market. We are therefore taking action to avoid the likely distortions which will arise in Scotland from the new UK SDLT surcharge on the purchase of additional properties – including buy-to-let and second homes – which could make it more attractive to invest in such properties in Scotland compared to other parts of the UK."

"Our LBTT additional homes supplement therefore seeks to ensure that the opportunities for first time buyers to enter the housing market in Scotland remain as strong as they possibly can. The proposed additional levy of three percentage points on transactions over GBP40,000 is proportionate and fair."

TAGS: individuals | tax | real-estate | United Kingdom | tax thresholds | tax authority | tax rates | stamp duty | HM Revenue and Customs (HMRC) | tax reform | HM Revenue and Customs (HMRC) | individual income tax | Tax | Scotland

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