News & Views

The Scottish Draft Budget 2018/19

By 19th December 2017 No Comments

A “fairer and more progressive” tax system?

Last week saw the eagerly awaited Scottish draft Budget which followed draft proposals from the Scottish Government for reforming the structure of income tax.  As the SNP does not have a majority, the Budget only represents draft proposals and these may change before becoming law.

Derek Mackay, the Scottish Cabinet Secretary for Finance and the Constitution, claimed that around 70% of Scottish taxpayers in Scotland earning less than £33,000 will not pay more income tax in 2018/19 than in 2017/18, but time will only tell if the revised income tax framework will “make Scotland’s tax system fairer and more progressive”.

Unfortunately, Mr Mackay has complicated the tax structure by creating two new rates of tax – a starter rate at 19% and an intermediate rate at 21% and has added 1% to the current 40% higher and the 45% additional rates.

The proposed new income tax bands above any available personal allowance for 2018/19 are as follows:

Taxable Income

Band Name

Tax Rate

0 – 2,000 Starter 19
2,001 – 12,150 Basic 20
12,151 – 32,423 Intermediate 21
32,424 – 150,000* Higher 41
Over £150,000 Top 46

* Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.

The above new structure will mean:

  • The Scottish basic-rate band will run from the personal allowance of £11,850 set by Westminster to £24,000 of income;
  • The 41% higher-rate threshold for 2018/19 will be £44,273, which compares to a 40% higher-rate threshold and £46,350 for the rest of the UK; and
  • The basic-rate remains at 20%, however, there will be a band of intermediate-rate taxpayers who will be able to reclaim an extra 1% tax-relief on their pension contributions.

Land and Building Transaction Tax

After last month’s Westminster Budget, a widely expected change to help first time buyers was made to Land and Building Transaction Tax (LBTT).  Mr Mackay increased the nil rate slice of LBTT by £30,000 to £175,000, giving first time buyers a maximum saving of £600 from 2018/19.