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Budget: Scottish tax rates set for 2016-17

Published: 16 Dec 2015 14:49
Part of:
Economy

Swinney: “I will not penalise the poorest taxpayers”.

Deputy First Minister John Swinney has announced tax proposals for 2016-17.

As part of the Scottish Government's 2016-17 Draft Budget delivered to Parliament this afternoon, the Finance Secretary has proposed:

  • A 10p Scottish Rate of Income Tax, meaning the rates paid by Scottish residents stay the same
  • Land and Buildings Transaction Tax (LBTT) maintained at current levels, thus ensuring 93 per cent of home buyers either pay less than under UK stamp duty land tax (SDLT) or pay no tax at all
  • A LBTT 'second-homes' supplement on purchases of additional residential properties, including buy-to-let properties
  • Scottish Landfill Tax of £84.40 per tonne at standard rate and £2.65 per tonne at lower rate.

The Scottish Rate of Income Tax has been set for the first time today, as the last of three tax powers devolved to the Scottish Parliament under the Scotland Act 2012.

The proposals mean the total rate of income tax paid by people living in Scotland remains the same, while maintaining the amount of tax paid by home buyers at current levels will ensure that those purchasing properties worth £330,000 or less will pay less tax than under UK stamp duty, or no tax at all – representing over 93 per cent of home buyers in 2016-17.

The Deputy First Minister has described the proposed tax rates as "the best package possible with severely restricted powers" and pledged that the Scottish Government "will not penalise the poorest taxpayers".

Mr Swinney said:

"Where we have the freedom to shape a taxation system that is fair and proportionate to the ability to pay, we have created a tax system that is progressive and helps those who most need it.

"I have today also proposed the first Scottish Rate of Income Tax and setting a 10p rate means that there is no change to the overall tax rates paid by Scottish taxpayers.

"The income tax powers we currently have do not allow us to make income tax fairer, and I will not penalise the poorest taxpayers. This is the best decision possible with severely restricted powers."

The proposed LBTT supplement on purchases of additional residential properties, such as buy-to-let or second homes follows the new surcharge proposed by the UK Government in last month's Spending Review. The proposed supplement is three percentage points of the total price of the property for all relevant transactions above £40,000 and will be levied in addition to the current LBTT rates.

The Deputy First Minister said:

"Our objective is to make sure that first time buyers have the greatest possible chance to enter the housing market.

"We are therefore taking action to avoid the likely distortions which will arise in Scotland from the new UK SDLT surcharge on the purchase of additional properties – including buy-to-let and second homes – which could make it more attractive to invest in such properties in Scotland compared to other parts of the UK.

"Our LBTT additional homes supplement therefore seeks to ensure that the opportunities for first time buyers to enter the housing market in Scotland remain as strong as they possibly can. The proposed additional levy of three percentage points on transactions over £40,000 is proportionate and fair."

As of next April, the rates of UK income tax paid by Scottish residents will be reduced by 10p and in its place the Scottish Parliament will set a Scottish Rate of Income Tax.

The power to set SRIT was devolved as part of the Scotland Act 2012, but it is a limited power which allows for only one rate to be set which must apply equally to all bands. It also does not allow for the Scottish Parliament to make any changes to the UK thresholds for basic, higher or additional bands.

The Scottish Rate, the LBTT supplement and the remainder of the Budget are subject to the approval of Parliament and will become payable from April 2016.

Notes to editors

View the full budget document at www.gov.scot/Publications/2015/12/9056

What is the Scottish rate of income tax (SRIT)?

From 6 April 2016, the Scottish Parliament will have the power to set the rate for part of the income tax you will pay if you are a Scottish taxpayer. This amount will continue to be collected by HMRC which will then be paid over to the Scottish Government.

This is a change from the current system, where all income tax is set by, and paid to, the UK Government to fund spending across the UK.

Who does it apply to?

The Scottish Rate of Income Tax applies to you if you are a UK taxpayer and your main residence is in Scotland.

If you receive a letter from HMRC and agree that you are a Scottish taxpayer you do not need to take any action. If you pay income tax by PAYE your income tax will continue to be collected by HM Revenue and Customs (HMRC) in the same way as it is now from your pay or pension.

How does it work?

From April 2016, all UK rates of income tax will be reduced by 10p for Scottish taxpayers and in its place the Scottish Parliament will set a Scottish Rate of Income Tax.

Receipts from SRIT will be collected by HMRC and paid to the Scottish Government.

The Scottish Government does not have the power to vary the Scottish Rate of Income Tax by band. It can only be applied equally to all tax bands, which means that any change to the rate would affect all basic, higher and additional taxpayers.

Does this mean I'll need to pay more tax?

The Scottish Government is proposing a Scottish rate of income tax of 10p.

Setting a 10p rate means that there is no change to the overall tax rates paid by Scottish taxpayers.

Therefore, Scottish taxpayers will continue to pay the same amount of income tax as taxpayers in the rest of the UK.

You will find more information on the rate at www.gov.scot/incometax.

Will it rise in future years?

As with current UK-wide income tax arrangements, the Scottish rate of income tax will be set annually.

Why can't the rate of income tax be varied by tax band?

The Scotland Act 2012 set out that one rate of SRIT would be applied equally to all tax bands. Subsequently the income tax powers offered to the Welsh Government have removed this "lockstep" inflexibility.

The new Scotland Bill, which is currently before the Westminster Parliament, proposes to give the Scottish Parliament the power to vary tax rates across different bands and to set the thresholds for these bands.

Do the Scottish Government have plans for the further income tax powers under the Scotland Bill?

The Scottish Government will set out its intentions for these powers for the remainder of this Spending Review period before the end of this Parliament.