Scottish income tax rate unchanged, but additional property surcharge applies
The Scottish government has announced that its land and buildings transaction tax will be amended to impose a 3 per cent surcharge on the purchase of second homes and buy-to-let properties from next April.
The change, announced in this week's Scottish Budget, will keep Scotland in line with the rest of the UK. Chancellor George Osborne announced the 3 per cent extra charge on all stamp duty land tax (SDLT) bands in the Autumn Statement at the end of November, to take effect next tax year in England, Wales and Northern Ireland. HM Treasury has also confirmed that this extra SDLT charge will apply to foreign and non-UK domiciled buyers as well as UK residents.
This week's Scottish budget was also the first to incorporate the new Scottish rate of income tax.
This tax operates by reducing the basic UK rate of income tax by 10 per cent for Scottish residents, and leaving it up to the Scottish government to add on its own rate. In the event, the Scottish government's Finance Secretary, John Swinney, chose to set this additional rate at 10 per cent, so that Scottish residents will pay the same income tax as the rest of the UK for 2016 – 2017 (the first year of the tax's operation) – i.e. income tax bands of 20, 40 and 45 per cent will apply in Scotland as in the rest of the UK.
This decision was widely expected, with Scottish parliamentary elections coming up in spring 2016. However, it is likely to be a one-year-only reprieve, according to David Glen, PwC's head of tax in Scotland. 'When the long awaited fiscal framework agreement [i.e. revising the Barnett formula for block grants from Westminster to Holyrood] is reached, we are likely to see both rates and bands diverge from the rest of the UK from April 2017 giving a more progressive outcome', he said.
UK government has promised agreement on the fiscal framework by the time the current Scotland Bill is due to be enacted, but according to George Bull TEP of RSM (formerly known as Baker Tilly) there could yet be problems. Scotland's First Minister, Nicola Sturgeon, has warned that if the calculation of the block grant was seen to leave Scotland at a disadvantage, then Holyrood could veto the legislation, he said.
Sources
- PWC
- Herald Scotland
- HM Revenue & Customs
- Ross Martin Consultancy
- HMRC
- HMRC (issue briefing)
- STEP UK news story (15 June 2015): Who will have to pay the new Scottish income tax?
- STEP UK news story (14 September 2015): Widespread ignorance of Scotland's impending income tax
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