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Most taxpayers to pay less than rest of UK

Published: 14 Dec 2017 14:35

Additional revenues raised to protect NHS and other services.

More than two thirds of income taxpayers will pay less tax next year on their current income, Finance Secretary Derek Mackay has confirmed as he published proposals to reform income tax in Scotland.

The Draft Budget 2018-19 proposes a progressive income tax policy which protects low earning taxpayers through the introduction of a new Starter Rate of tax.

The Cabinet Secretary also confirmed plans to introduce a new Intermediate Rate of tax of 21% and plans to increase the Higher and Top Rate of tax, to 41% and 46%.

As a result of these changes, and the increase in the personal allowance, all taxpayers earning up to £33,000 will be protected from any increase in tax rates. Those earning more than £33,000 will pay only a proportionate amount more.

A majority of taxpayers (55%) in Scotland will pay marginally less in 2018-19 than they would in the rest of the UK.

Setting out the Draft Budget for 2018-19, Mr Mackay said:

“The Scottish Government has faced continued austerity from the UK Government. Over a ten year period, Scotland’s block grant will have been cut by £2.6 billion in real terms and the independent Fraser of Allander Institute has confirmed that we face a £500 million real terms reduction in spending on day-to-day services over the next two years.

“In order to mitigate UK budget cuts, protect our NHS and other public services, support our economy and tackle inequality in our society, we have decided to reform income tax in Scotland.

“In line with the four tests set out in our discussion paper, our reforms will ensure that the vast majority of taxpayers are protected, that income tax becomes more progressive, that revenues are generated for investment in public services and that - coupled with our spending choices - there will be a positive impact on the economy.

“By raising an additional £164 million of revenues to support our investment plans we can deliver on our commitment to the NHS in full, with £400 million of extra spending on health without having to reduce spending on police and fire services, social care or education.

“Our new, fairer, income tax policy will protect the 70% of taxpayers who earn less than £33,000 a year and ensure they pay less tax next year for any given income whilst asking those earning more than £33,000 to pay a proportionate amount more to support our public services.

“Our plans also ensure that over half of taxpayers will pay slightly less in Scotland next year than they would in the rest of the UK, protecting low incomes and supporting the economy.

“These measures combined with our investment in the NHS, the economy, infrastructure, education and essential public services ensure that in the year ahead Scotland will be the fairest taxed part of the UK, providing the best deal for taxpayers.”

The reforms follow engagement with the public, business organisations and Civic Scotland around the Scottish Government’s discussion paper ‘The Role of Income Tax in Scotland’s Budget’.

The Scottish Fiscal Commission has forecast that these changes will generate £164 million of additional revenues in 2018-19 and that following the Scottish Government’s decision in 2017-18 to freeze the higher rate threshold, forecast revenues will be £366 million above the block grant adjustment.

The additional revenues come at a time when the UK Government is cutting £200 million in real terms from Scotland’s budget for day-to-day spending in the coming year and will help to support a draft budget package which provides £400 million of increased investment in the health service without having to impose cuts on other public services such as social care, police, fire or education.

Income tax proposals for 2018-19 are:

  • A new Starter Rate of 19% will be introduced for those earning between £11,850 and £13,850
  • A Basic Rate of income tax at 20% for those earning over £13,850
  • A new Intermediate Rate of 21% for those earning over £24,000 - however as a result of the new Starter Rate taxpayers earning less than £33,000 will pay no more in tax for given incomes
  • A Higher Rate of 41% on incomes over £44,273 to £150,000
  • A Top Rate of 46% on incomes over £150,000

In addition, the Draft Budget confirms that for Residential Land and Building Transaction Tax (LBTT) the Scottish Government will set a new zero rate threshold for first time buyers of £175,000 – taking 80% of first time buyers out of tax altogether. The residential and non-residential rates and bands for LBTT will remain unchanged.

Mr Mackay continued:

“As part of our support for housing we are not just investing £3 billion over this parliament to increase the supply of affordable housing, but we will provide more support to help people to own their first home. These changes to LBTT mean 80% of First Time buyers will pay no tax at all on the purchase of their first home.”


Scottish Income Tax proposed rates and bands 2018-19


Scottish income tax rates

Scottish Bands

A Starter Rate of 19%

Over £11,850 - £13,850

The Scottish Basic Rate of 20%

Over £13,850 - £24,000

An Intermediate Rate of 21%

Over £24,000 - £44,273

A Higher Rate of 41%

Over £44,273 - £150,000

A Top Rate of 46%

Above £150,000

The Scottish Fiscal Commission estimate the policy above will raise an additional £164 million, taking forecast income tax revenues in 2018-19 to £12,115 million.

Following the Scottish Government’s decision in 2017-18 to freeze the higher rate threshold of income tax and the introduction of reformed income tax proposals for 2018-19, income tax policy in Scotland contributes to forecast revenues £366 million above the block grant adjustment to support public spending and investment in the economy in 2018-19.

Land and Building Transaction Tax proposed rates and bands for residential and non-residential property transactions, 2018-19

Residential transactions

 Non-residential transactions

Non-residential leases

Purchase price


Purchase price


Net present value of rent payable


Up to £145,000


Up to £150,000


Up to £150,000




£150,001 to £350,000


Over £150,000


to £250,000



Over £350,000




to £325,000







to £750,000

Over £750,000



The Scottish Fiscal Commission forecast changes to LBTT will cost £6 million with total forecast LBTT revenues for 2018-19 of £588 million.

Income tax Policy proposals in Draft Budget 2018-19: Fact Sheet.