What are the implications of the Scottish budget and its tax changes?
Finance Minister Derek Mackay delivered the draft budget for Scotland on Thursday 14th December, outlining the Scottish National Party’s financial plans for the year ahead regarding tax, health and social care, business and a range of other areas. Most significant amongst the changes announced was the plan to move Scotland to a five-band income tax system.
The Finance Minister has said that the shift will mean lower earners will be paying less than anywhere else in the UK, whilst higher earners will be paying more, and that nobody whose income is under £33,000 will pay more tax than they do now. Whilst the figures are yet to be finalised as Holyrood will need to vote on the proposals, it’s clear that there will be few taxpayers in Scotland who won’t see a change in their finances if Mr. Mackay’s budget goes ahead.
The new system will see those earning between £11,850 and £13,850 pay the starter rate of 19 pence per pound. Those earning from £13,851 to £24,000 will pay a penny more at 20p on the basic rate, with a new intermediate rate of 21p for people earning between £24,001 and £44,273. The higher rate, paid by those earning from £44,274 to £150,000, will be 41p, up from the current rate of 40p. Those earning above £150,000 will also see a penny increase from 45p to 46p on the additional rate they are charged.
Crunching the numbers reveals that 70% of people in Scotland will end up paying less tax than they currently do. The new tax bands mean that someone earning £20,000 will be £90 better off every year, but that a taxpayer earning twice as much will be £70 poorer. However, someone earning £50,000 will actually end up with £85 more than they currently have. At the top end of the scale, anyone earning £150,000 will end up paying £1,174 more in tax than they did in 2017-18.
However, the threshold increases implemented by Chancellor Philip Hammond across the rest of the UK give a different perspective to Mr. Mackay’s planned changes, as only 55% of Scottish taxpayers will pay less than they would if they lived in another part of the UK. A £20,000 earner will only be £20 better off than they would be outside of Scotland, whilst a £40,000 earner will be £140 worse off. Whilst those earning £50,000 will benefit as we’ve already seen, they would actually pay a fairly substantial £655 less tax if they were living in another part of the UK. A £150,000 earner would also be much better off outside Scotland where they would save £1,774 in tax payments in comparison.
If this blog has raised any questions why don't we have a quick chat?
MD & Certified Financial Planner
A brief meeting might be of interest, especially if you’re unsure just how wealth management and financial planning could help you.
It would only require the investment of an hour or so of your time, and the coffee’s not bad either.