Tax decisions to protect public services

Fairness and investment in public services will continue to be ‘front and centre’ of the Scottish Government’s tax policies in the year ahead, Finance Secretary Derek Mackay has said.

Speaking as he delivered his budget statement in parliament, Mr Mackay confirmed 55% of taxpayers will pay less income tax next year than if they lived elsewhere in the UK, and 99% will pay less income tax than they do this year on their current income.

Increasing the starter and basic rate bands by inflation would protect low and middle income taxpayers, he said, whilst freezing the higher rate threshold - paid by only the top 15% of taxpayers in Scotland - at £43,430 is forecast to deliver an extra £68 million.

The additional revenue will be invested in public services and supporting economic growth and will help ensure health and care services are not affected by the £55 million shortfall in additional funding committed to by the UK Government in June 2018.

The Finance Secretary also confirmed Scotland will implement a below inflation increase in the poundage, meaning 90% of business properties in Scotland will be charged a lower rate than in the rest of the UK and 100,000 small businesses being lifted out of business rates all together.

Mr Mackay set out plans to:

• Maintain the current rates of income tax for the coming year
• Increase the Additional Dwelling Supplement for Land and Buildings Transaction Tax from 3% to 4% for the purchase of an additional property
• Reduce the lower rate of non-residential Land and Buildings Transaction Tax (LBTT) from 3% to 1%, increase the upper rate from 4.5% to 5%, and reduce the starting threshold of the upper rate so it applies from above £250,000
• Introduce a below-inflation increase in the non-domestic rates poundage, ensuring more than 90% of properties in Scotland will be charged a lower rate, set at 49p, than other parts of the UK
• Maintain the Small Business Bonus Scheme and transitional support for businesses in hospitality, and for office premises in Aberdeen and Aberdeenshire as part of a £750 million package of rates reliefs
• Increase the standard rate of Scottish Landfill Tax (SLfT) to £91.35 per tonne and the lower rate of SLfT to £2.90 per tonne in 2019-20, in line with RPI inflation and Landfill Tax charges in the rest of the UK

Mr Mackay said:

“Our decisions on taxation have resulted in a more progressive tax system, protecting those lower and middle income taxpayers, while raising additional revenue to invest in our public services and the Scottish economy. Those priorities will continue to be front and centre of our tax policy in the year ahead.

“Freezing the higher rate tax threshold will ensure Scotland’s health and care services gets the full budget increase they deserve, despite a £55 million shortfall from the UK Government’s autumn budget.

“In addition, our rates of Land and Buildings Transactions Tax continue to protect first time buyers and support people as they progress through the property market, with more than 80% of taxpayers paying no tax or less tax than in England.

“Our decisions on business rates also mean that more than 90 per cent of properties in Scotland will be charged a lower tax rate than the rest of the UK.

“This, alongside our commitment to lift 100,000 properties out of business rates altogether, will support businesses, contribute to economic growth, boost employment and generate the revenues that enable continued investment in public services.”

Background

Income Tax factsheet

Proposed income tax rates and bands for 2019-20:

Income in Range	Name	Rate
Above £12,500* – £14,549	Starter Rate	19%
Above £14,549 - £24,944	Scottish Basic Rate	20%
Above £24,944 - £43,430	Intermediate Rate	21%
Above £43,430 - £150,000**	Higher Rate	41%
Above £150,000** +	Top rate	46%

*Assumes individuals are in receipt of the Standard UK Personal Allowance. **Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

 

LBTT Rates and Bands for Residential and Non-residential Property Transactions

Residential transactions		Non-residential transactions*		Non-residential leases
Purchase price	LBTT Rate	Purchase price	LBTT Rate	Net present value of rent payable	LBTT Rate
Up to £145,000	0%	Up to £150,000	0%	Up to £150,000	0%
£145,001 to £250,000	2%	£150,001 to £250,000	1%	Over £150,000	1%
£250,001 to £325,000	5%	Over £250,000	5%
£325,001 to £750,000	10%
Over £750,000	12%

*Non-residential rates and bands will come into force from 25 January 2019.

The new ADS rate of 4% applies to the total price of the property for all relevant transactions above £40,000, and will be charged in addition to the rates set out in the table above.