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On 2 November the Scottish Government published its Consultation document “The Role Of Income Tax In Scotland’s Budget”.  Of particular interest to Scottish taxpayers are four alternative options for the taxation of income devolved to Scotland (being non-savings and non-dividend income), one of which will likely be adopted in future.

The first option simply raises the rates of tax in the additional and higher rate tax bands without otherwise changing the existing band structure.

The second option also raises the rates as above but, in addition, introduces a fourth tax band, effectively splitting the first band into two.  Under this option a new band of gross income between £24,001 and £44,290 would be taxed at 21%, while income between £44,291 and £150,000 would be taxed at 41% and the excess over £150,000 at the higher rate of 48%.  This option does not affect basic rate taxpayers earning up to £24,000 per year.

The third option takes things further by adding a fifth band which splits up the additional rate bands, taxing gross income between £44,291 and £75,000 at 41%, income between £75,001 and £150,000 at 42% and income over £150,000 at 50%.  This is expected to increase the tax liability for the top 4% of Scottish Income Tax payers.

Finally, the fourth option adds a sixth band to the mix, essentially creating a new rate for those on the lowest taxable incomes.  Under this option, income between £11,850 and £15,000 (rather than £24,000) would be taxed at a rate of 19%, with income between £15,001 and £24,000 being taxed at the standard rate of 20% and the other bands remaining as in the previous options.  The effect of this measure is to reduce tax for those in the lowest tax bracket.

Although the Consultation does not appear to favour one option over the other, it does note that “now is the time to look more seriously at using our tax powers to help protect the services we all expect and deserve”.  While the document itself merely seeks to “facilitate a debate” on the issue, with the next Scottish Government Budget likely to be published in early December, the likelihood is that the debate will happen sooner rather than later.

If you have any queries or require any assistance with your own tax return, please contact any member of Stronachs’ Private Client Team.

Magnus Mackay, Associate

Chambers UK 2018

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