The Scottish Budget 2023-24: top tax takeaways

Here are our top tax takeaways from the Scottish Government Budget 2023/24 delivered today by John Swinney.

1. In the most eye-catching announcement in the Scottish Budget, the top two rates of Scottish income tax were increased by 1%, the Scottish higher rate going up from 41% to 42% and the top rate going up from 46% to 47%. Those rates affect only the earned and property income of Scottish taxpayers, other types of income being liable at rates set for the rest of the UK.

2. Scottish income tax thresholds have been retained at the same level as 2022/23 except for the threshold at which the top rate begins to be applied, this has been reduced in line with the rest of the UK. The thresholds for 2023/24 are: Starter rate £12,570; Basic rate £14,732; Intermediate rate £25,688; Higher rate £43,662 and Top rate £125,140 (formerly £150,000).

3. It was primarily the advance publication by the BBC of the changes in rates and thresholds which led to the temporary suspension of the delivery of the Budget statement, there was criticism from the Presiding Officer and a denial by Mr Swinney that there had been any leaking on his behalf.

4. In what was something of a surprise, there was a 50% increase in the additional dwelling supplement (ADS) element of land and buildings transaction tax (LBTT), from 4% to 6%. This change comes into almost immediate effect, being charged on transactions settling on or after 16 December 2022, unless a contract has been concluded for the transaction prior to that date.

5. This affects any transaction where the purchaser – or a range of others connected with the purchaser - already owns another dwelling. While often referred to as a “second homes tax”, its impact is broader, affecting buy-to lets and other purchases; it is payable on a main residence if a new one is bought before a previous one is disposed of, although in most cases the ADS can be reclaimed on that subsequent disposal. Indicative of the wide effects of ADS is the fact that approximately 25% of residential returns include an ADS element; and even before this change ADS produced virtually the same percentage of total residential LBTT.

6. According to the Scottish Government’s own figures the average house price in Scotland in the second quarter of 2022 was £188,000. Someone buying this house as their sole home in Scotland would pay LBTT of £860. If it was a “second home” (and remember – the ADS is not a second homes tax) bought on 15 December, the total tax would be £8,380. As a “second home” bought on or after 16 December, the tax increases to £12,140. The same home bought in England would bear no SDLT if a first home, and £5,640 if a second home.

7. A major consultation on possible reforms to various aspects of ADS took place in late 2021/early 2022 following the 2022-23 Budget. It has now been announced that early in 2023, the Scottish Government will publish a response to that consultation and launch a further consultation on resulting draft legislation.

8. Business rates – in response to calls from a range of stakeholders to freeze the non-domestic rates poundage, the Scottish Government will freeze the Basic Property Rate at its current level of 49.8%. The Small Business Bonus Scheme (SBBS) is to be reformed and extended, with a transitional relief for properties losing SBBS. A Revaluation Transitional Relief will also be introduced to counteract increases in rateable values in the 2023 valuation. New plant and machinery exemptions will be introduced for onsite renewable energy generation and capture to support the attainment of net zero targets.

9. Scottish Landfill Tax (SLfT) – from 1 April 2023, the standard rate and lower rate of SLfT will both be increased to £102.10 per tonne and £3.25 per tonne, respectively, in line with the rest of the UK.

10. There will be no caps on locally determined rates of Council Tax, so councils will have full flexibility to set Council Tax rates.