This article is based on an article by which appeared in The Scotsman on Thursday 2nd November 2017.

We are all now familiar with the fact that there are Scottish Taxes.

Land and Buildings Transaction Tax (LBTT)

The first actual impact of these taxes was not until the introduction of Land and Buildings Transaction Tax (LBTT) on 1st April 2015. 2016/17 saw the introduction of the Additional Dwelling Supplement of 3%. There has been much press coverage about the potential impact of the current LBTT rates on the Scottish property market.

Scottish Rate of Income Tax (SRIT)

On income tax, the Scottish Government now have the power to set the Scottish Rate of Income Tax. The power was used for the first time in 2016/17 and it was set so as to give the same effective rates north and south of the border. It is only in the current year where the first differential income tax rates apply, although the impact is limited – the Scottish Government decided to freeze the threshold at which the higher rate (40%) applies at £43,000.

Divergence is clearly here to stay as evidenced by the recent vote in Holyrood and the Scottish Government’s recent Discussion Paper on Income Tax in Scotland. The discussion paper sets out four alternative approaches to Income Tax. The first would keep the three existing income tax bands but add one penny on both the higher and additional rates of income tax, leaving the basic rate at 20p. The three other proposals all involve the creation of additional income tax bands – up to six separate bands under their fourth proposal.  Leaving the complexity of the proposals aside, they generally mean higher taxes for those earning more than £25,000.    

The Scottish Government must be acutely aware of possible behavioral impacts of any changes, especially where a different rate or regime exists across the border. However, the desire to protect and improve public services in the face of UK spending cuts suggests that the Scottish Government will indeed attempt to raise its revenues in the next year.

Scottish Budget

Finance Secretary, Derek Mackay, has confirmed that the Scottish Draft Budget for 2018-19 will be published on 14th December 2017, three weeks after the UK Autumn Budget on 22nd November.