Scottish Finance Secretary, Derek Mackay, proposed the most significant Draft Scottish Budget to date.

The key areas in relation to taxation can be summarised as follows:

Land and Buildings Transaction Tax

The new first time buyer relief offered by the UK government in the Chancellor’s recent Budget has been passed on, in part, to Scottish first time buyers.

The relief will extend the 0% band from £145,000 to £175,000 for first time buyers in Scotland. This is less than the £300,000 first time buyers’ threshold for the rest of the UK but will purportedly remove the burden of LBTT for 80% of first time buyers in Scotland. A consultation will be issued before this is introduced for the 2018/19 tax year.

All other bands and rates were retained.

Income Tax Rates

The Finance Secretary also announced that the Scottish Government will exercise Scotland’s income tax raising powers to make a number of changes to the rates and bands applying to the Scottish rate of income tax (which applies broadly to all non-savings income for Scottish resident taxpayers) with effect from 6th April 2018.

A new Scottish starter rate of 19% was announced for the first £2,000 of taxable Scottish income (in excess of the UK Personal Allowance). In addition, an intermediate Basic Rate band was introduced for earnings subject to the Scottish Rate of income tax between £24,000 and £44,273.

The Finance secretary has also introduced a new higher and additional rate of tax at 41% and 46% respectively.

The rates applicable for the 2018/19 tax year can be summarised as follows:

 Scottish Bands

Band name

Scottish Rates (%)

Over £11,850* – £13,850

Starter

19

Over £13,850 – £24,000

Basic

20

Over £24,000 – £44,273

Intermediate

21

Over £44,273 – £150,000**

Higher

41

Above £150,000**

Top

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.

Scottish taxpayers will be marginally better off for income up to £26,000. Thereafter, there will be an overall increase in tax liability compared to taxpayers in the rest of the UK.

Finally, it is worth noting that for Scottish taxpayers with a mixture of savings and non-savings income there could be up to 10 different rates of income tax applying.