Scottish income tax rate proposals

Tue 07 Nov 2017

As it prepares to set its 2018/19 Budget, the Scottish Government has announced the issue of a paper discussing proposals for the direction of income tax in Scotland.  To stimulate debate.  It suggests that any income tax change needs to be assessed against four policy aims.  These are:

• Mitigating UK Government spending cuts and maintain and promote the level of public services the Scottish people expect;
• Making the tax system more progressive and reduce inequality
• Protecting lower earners
• Supporting economic growth

There is a statement that any income tax changes in 2018/19 should raise additional revenue over and above current policy, to help protect public services in Scotland and maintain the social contract. The four alternative proposals discussed which the Scottish Government considers could meet these aims are:

1. Increasing the existing higher rate band rate to 41% and additional rate band rate to 46% – increasing collections by around £85m;
2. Having four income tax bands, including a new one for income levels of between £24k and £44k at a rate of 21%, with the higher rate band being 41% and additional rate band being 48% or 50% – raising around £240m;
3. Having five income tax bands, the top rate being 50% – raising around £260m;
4. Having 6 income tax bands, including the lowest at 19%, the top rate being 50% – raising around £190m.

There is also discussion of freezing thresholds rather than providing for inflationary increases.

There is a commitment to hold round table discussions with business, the third sector and civic society to inform thinking ahead of the tax and spending decisions for 2018/19, which will be published in the Draft Budget on 14th December 2017.

For a discussion of how Scottish taxes could impact your personal or business affairs, please get in touch Ross Mackenzie or your usual Mazars contact.