Tartan Tweaks – Scottish Budget 2018

Category: Taxation - Posted On: Dec 14 2018

Wednesday afternoon saw Scottish Finance Secretary, Derek Mackay, deliver his Scottish Budget address. You’ll recall the UK Chancellor raising the limits for the basic rate band for 2019/20 to £50,000, but the Finance Secretary decided to leave the Scottish basic rate band at £43,430. His justification for this was to raise additional tax revenues though our experience is that this encourages tax avoidance and may actually raise less revenue. The bandings and rates for 2019/20 are expected to be as follows:-

Over £12,500 to £14,549Starter rate19%
Over £14,549 to £24,944Scottish Basic rate20%
Over £24,944 to £43,430Intermediate rate21%
Over £43,430 to £150,000Higher rate41%
Over £150,000Top rate46%
Note the above bandings apply to taxpayers entitled to the full personal allowance of £12,500.

The other major change related to LBTT (Land & Building Transactions Tax). As if residential property landlord hadn’t been taxed enough, the ADS (Additional Dwelling Supplement) has been raised to 4% with effect from 25 January 2019. On the slightly more positive side, non-residential property rates are reduced from the same date, 25 January 2019. The table below summarises this.

Residential Transctions Non-Residential Transactions  Non-Residential Leases 
Purchase PriceLBTT ratePurchase PriceLBTT rateNPV of rent payableLBTT rate
Up to £145,000 0%Up to £150,0000%Up to £150,0000%
£145,001 to £250,000 2%£150,001 to £250,000 1%Over £15,0001%
£250,001 to £325,000 5%Over £250,0005%
£325,001 to £750,000 10%
Over £750,00112%
Note that ADS applies to residential property purchases over £40,000 and is in addition to the rates quoted above.

Confused? All these rates making your head hurt? It seems Mr Mackay is tinkering with the tax rates and simply making matters unnecessarily complex. It will be interesting to see if, in the long term, entrepreneurs are willing to accept the higher tax position in Scotland.

Head of EQ Taxation, David Morrison, commented “the Finance Secretary has seen fit to not follow the UK Chancellor in raising the basic rate band leaving higher earners in Scotland paying more than their English counterparts. Your political viewpoint will dictate how you view this but as a business adviser, “over taxing” entrepreneurs often backfires and in my experience results in less tax revenue. For residential property landlords who have experienced a lot of pain in the past few years, this is just another kick in the teeth.”

Your EQ contact will be happy to discuss any relevant matters with you or alternatively, please e-mail taxation@eqaccountants.co.uk.