Tax changes to support Scotland’s vital public services

Proposed changes to a range of devolved taxes will raise extra revenue to support the NHS and other public services in Scotland, Deputy First Minister John Sweeney has announced.

On income tax, he set out plans to add 1p to the top and top rate, keeping the starting and basic tax rates at their current level, and to lower the threshold at which people pay the top rate , from £150,000 to £125,140. According to the Scottish Fiscal Commission (SFC), this will raise £129m.

In addition, the higher rate threshold would be kept at its current level, raising revenue by a further £390m above inflation according to Scottish Government estimates.

The Scottish Fiscal Commission estimates that tax decisions made in Scotland following the devolution of income tax powers could raise around £1bn more in 2023-24 than income tax policy decisions made by the Government of United Kingdom.

An additional £34m is expected to be raised by increasing the Additional Home Surcharge from 4% to 6% from 16 December 2022, which is paid as part of the Land and Buildings Transaction Tax (LBTT) on additional properties.

During his budget statement to Parliament, the Deputy First Minister also set out plans to:

• freezing foreign exchange rates for the pound and offering transitional relief to businesses that see the most significant increases in their rateable values ​​after the revaluation on 1 April 2023.
• maintaining the resident and non-resident rates and LBTT bands
• increasing the standard and lower rates of Scottish Landfill Tax, which will prevent the cross-border movement of waste and support circular economy ambitions

Mr Sweeney said:

“These tax decisions seek to strike a balance between providing enough money for public spending and recognizing the challenging economic conditions facing households and businesses.

“The income tax proposals I have put forward will improve the Scottish Government’s progressive approach to tax. Using the extra revenue raised through our tax changes will allow us to increase the NHS budget by £1 billion, going beyond the health impact we received from the UK Government. At the same time, the majority of people in Scotland will still pay less tax than if they lived in the rest of the UK.

“On non-domestic rates, we have listened to business and by freezing the pound we will deliver the lowest pound in the UK for the fifth year in a row. This will ensure that over 95% of foreign properties will continue to be taxed at a lower rate than anywhere else in the UK.

“The increase in tax payable on the purchase of additional homes as a second home supports our commitment to protecting housing options for first-time buyers in Scotland, while raising vital additional income.”

Background

The bands and rates of Scottish income tax proposed in the 2023-24 Budget are:

* Individuals are assumed to receive standard personal assistance.

** Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.

The increase in the additional dwelling allowance for a land and buildings transaction will come into effect from 16 December 2022. The increase will not apply to transactions where the contract was entered into before that date.

The standard and lower rates of Scottish Landfill Tax will increase:

• From £98.60 to £102.10 per tonne (standard rate) from 1 April 2023.
• From £3.15 to £3.25 per tonne (lower rate) from 1 April 2023.

The latest Scottish Social Attitudes Survey (which involved interviews with 1,130 randomly selected people) showed that 64% of people think the level of taxation and spending on health, education and welfare should be increased. 68% agree that income should be redistributed from the more affluent to the more affluent.

Local authorities will set council tax rates as they see fit.