Yesterday Derek Mackay, the Cabinet Secretary for Finance and the Constitution, delivered his first Scottish Budget, and the first in which the Scottish Government makes use of new tax powers devolved under the Scotland Act 2016.
From April 2017 the Scottish Government has control over the rates and bands of income tax for Scottish tax payers in relation to their non-savings, non-dividend income, so this is the first time the that it has had the opportunity to set Scottish income tax rates across the board.
Of course the Scottish Budget proposals still have to be passed by Holyrood, where the Scottish Government does not have a majority. The impact of this parliamentary arithmetic is difficult to predict, though the initial reaction by opposition party leaders suggests that it may not be plain sailing.
There is to be a separate vote on the tax aspects of the Budget before the vote on the Budget itself.
The main tax proposals in the draft Scottish Budget are as follows.
Scottish Income Tax
The income tax rates for Scottish taxpayers for 2017-2018 will be the same as for taxpayers in the rest of the UK.
The threshold at which the higher rate of income tax starts to be payable will only increase to £43,430, however, as compared to £45,000 in the rest of the UK. This means that Scottish higher rate taxpayers will pay an additional £314 in 2017-18 as compared to taxpayers in the rest of the UK.
The Scottish Government also confirms that the higher rate threshold will rise by a maximum of inflation in all future years of this parliament.
These proposals are in line with announcements made earlier this year by the First Minister.
| Scottish Income Tax Rates | Scottish Bands |
| Scottish Basic rate 20% | Over £11,500* - £43,430 |
| Scottish Higher rate 40% | Over £43,430 - £150,000 |
| Scottish Additional Rate 45% | Over £150,000 and above** |
*Assumes individuals are in receipt of the Standard UK Personal Allowance
**Those earning more than £100,000 will see their Personal Allowance reduced by £1for every £2 earned over £100,000
Land and Buildings Transaction Tax (LBTT) and the 3% Additional Dwellings Supplement
There are to be no changes to the rates of LBTT, or to the 3% Additional Dwellings Supplement for 2017-18. There will be a degree of relief that the commercial rates for LBTT were not increased, given that the top rate of LBTT at 4.5% is lower than the top rate of SDLT at 5%.
Those who had argued for a reduction in the residential rates of LBTT at the higher end of the scale will be disappointed, however.
The rates of LBTT are as follows:
| Purchase price (Residential transactions) | LBTT Rate | Purchase price (Non-residential transactions) | LBTT Rate | Net present value of rent payable (Non-residential leases) | LBTT Rate |
| Up to £145,000 | 0% | Up to £150,000 | 0% | Up to £150,000 | 0% |
| £145,001 to £250,000 | 2% | £150,001 to £350,000 | 3% | Over £150,000 | 1% |
| £250,001 to £325,000 | 5% | Over £350,000 | 4.5% | ||
| £325,001 to £750,000 | 10% | ||||
| Over £750,000 | 12% |
The Additional Dwelling Supplement is three percentage points of the total price of the property for all relevant transactions above £40,000 and will be charged in addition to the rates set out in the table above.
Scottish Landfill Tax
The Scottish Government intends to increase the Standard Rate of Scottish Landfill Tax (SLfT) to £86.10 per tonne and the Lower Rate of SLfT to £2.70 per tonne in 2017-18 in line with RPI inflation and Landfill Tax charges in the rest of the UK.
Business Rates
New rateable values for all properties have been released today for the 2017 revaluation (which comes into force 1 April 2017).
The tax rate (poundage) for 2017-18 will be 46.6 pence (which is the same as in the rest of the UK).
The large business supplement will remain at 2.6 pence (which is higher than in the rest of the UK). It is proposed that the threshold will increase, so that the supplement is applicable only for properties with rateable value over £51,000.
There will be no transitional arrangements (transitional relief) to phase in bill rises or falls that result from the 2017 revaluation.
The thresholds for the Small Business Bonus Scheme will be increased so that there is 100% relief for rateable values up to £15,000, and 25% up to £18,000. This should result in 100,000 properties being exempt from paying rates altogether.
Council Tax increases
Increases to Council Tax for properties in bands E, F, G and H had already been legislated for by the Scottish Parliament. The Scottish Government had originally intended that the revenue from the Council Tax increases would be used for direct investment in attainment in schools.
In a move that is likely to be welcomed by councils, the Draft Budget now proposes that this investment should be funded from central resources. Each council will therefore retain its share of the estimated £111 million of additional income from the reforms to council tax bands.
Councils will also have the option of increasing council tax in 2017-18 up to a maximum of 3%, which would raise an additional £70 million of revenue.
