This article originally appeared in The Scotsman on Thursday 2nd November 2017.
We are all now familiar with the fact that there are Scottish Taxes.
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.
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 has 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 comments at the SNP Conference. The Scottish Government must be acutely aware of possible behavioural impacts of any changes, especially where a different rate or regime exists across the border.