Thomson Cooper gives an overview of the Scotland Budget –supported by comment from the Scottish business community
Last week, the Scottish Government introduced its budget for 2018-2019. The central focus was on taxation and the first meaningful use of devolved tax raising powers by Holyrood.
Finance Minister Derek Mackay introduced a five-band income tax system, which includes a new starter rate of 19% on the first £2,000 of earned income. The existing base rate of 20% will remain on earnings up to £24,000 with earnings above this level taxed now at 21% up to the higher rate threshold of £44,273. Higher and Additional Rate Taxpayers will see an increase in tax rate by 1% to 41% and 46% respectively.
The impact of these changes varies depending up income levels. In general terms, those earning less than £33,000 will find themselves slightly better off than in 2017-2018. Those above this threshold will see an increased tax take, for example a taxpayer earning £75,000 will pay an additional £165 in comparison to that in 2017-2018.
There is a slight anomaly in the proposed budget however in that those earning £50,000 will be marginally better off. This is due to the increase in the higher rate threshold to £44,273 from £43,000. This anomaly may be challenged though as the budget still needs Holyrood approval.
From a UK perspective, the “tipping point” is £26,000. Those earning less than this amount have a lower tax take in Scotland than in the rest of the UK. Those who earn more than £26,000 will their find tax take higher in Scotland. As an example, an individual earning £120,000 in Scotland will pay £1,455 more tax than their counterpart elsewhere in the UK.
As indicated above, the minority SNP Government draft budget will need Holyrood’s approval, so changes may still arise.
The other change in the budget was to follow the lead of the UK Chancellor and introduce a Land and Building Transaction Tax relief for first time buyers of £175,000. This is significantly less than the UK first time buyer relief of £300,000 but reflects the comparative cost of property in Scotland versus the South East of England.
Scrapping LBTT for first-time buyers “is not the answer”
Hew Edgar, RICS Policy Manager, Scotland, said: Following in the footsteps of Philip Hammond and scrapping LBTT (Land & Buildings Transaction Tax) for first-time buyers to the value of £175,000 is not the answer to stimulate activity in the Scottish housing market, making today’s announcement disappointing .
“Whilst this change has potential to stimulate activity in the short term, it comes at a time when the market is subdued, and does not tackle the overarching problem of housing shortage supply across all tenures.
“This Government must realise that prioritising demand side measures is not conducive to market fluidity and will do little to solve the chronic shortage of suitable accommodation across Scotland’s housing options.
“Once again, we call on Scottish Government to review the current LBTT as a priority going forward as this current framework is not only limiting market activity, but could ultimately bring the market to a standstill. That said, we hope that the “Building Scotland” fund will provide the required support for alternative models of housing delivery.
“On a more positive note, the £600m investment in providing superfast broadband – ensuring the last 5% of Scotland’s ‘non-spot’ dwellings – will be connected to the fourth utility by 2021, will be greatly received.
“As part of £4bn investment in this budget – £1.2bn of which will be directed towards transport – tackling the infrastructure deficit is always welcome. But Mackay held back and gave little away as to where the funding will be directed. He also missed an opportunity to attract and retain top talent to Scotland by not building on Scotland’s infrastructure success of the Queensferry Crossing, with no addition of noteworthy projects to the infrastructure pipeline.”
Changes to business rates – a positive step forward
John Baird, Director at Scotland Debt Solutions, said: “Small businesses up and down the country would have been waiting with bated breath to hear the outcome of the Scotland Budget – hoping that the Scottish Government would be the bearer of good news.
“Thankfully, when it comes to business rates, it is indeed good news, which should be welcomed by the Scottish business community. The decision to link Scotland’s Uniform Business Rate (UBR) to CPI (Consumer Price Index) rather than RPI (Retail Price Index) from April will make a significant difference to small businesses.”
Niall Rankin, Lead Director for Rating in Scotland at JLL,said: “The Scottish Government’s decision to make these much needed changes to our rating system should be welcomed by the business community as a positive step to promoting business growth and investment.
“Clearly influenced by the recommendations contained within this year’s Report of the Barclay Review, the decision to link the Scottish UBR to CPI from April 2018 is a progressive move which will maintain alignment on the basic tax rate with England. However, the 2.6p tax supplement on larger RVs in Scotland remains double that which applies south of the border and this needs to be addressed if Scotland wishes to attract bigger businesses.
“Other notable welcome changes include the introduction of the Business Growth Accelerator awarding 12 months rates relief for new builds and improvements to properties. Similarly, the revisions to Fresh Start Relief, will be of huge benefit to owners and prospective occupiers of vacant properties with RV up to £65,000; where properties have lain vacant for six months the new occupier will be entitled to 12 months relief.
“Finally, the introduction of Hydro Relief at 60% for generation properties provides a competitive incentive as Scotland looks to evolve and excel in this area.”
Scottish Budget backs business and supports growth
Head of ACCA Scotland Craig Vickery said: “While the tax announcements are making headlines, this is a budget that backs Scotland’s businesses and will help grow the economy. With the new tax revenue powers, Scotland needs to better or match economic growth elsewhere in the UK to offset future reductions in the block grant.
“Substantial investments in skills, infrastructure and broadband connectivity are positive signs that the Scottish government are looking to tackle the productivity puzzle which, like the rest of UK, lags behind European economies.
“Yet with the decline of the oil sector as well as the impact Brexit uncertainty is having on business confidence, these measures should be seen as the start of a long journey.’
Yet ACCA Head of Tax Chas Roy-Chowdhury said: “While increased tax thresholds will be welcome to many, it is a risky strategy to further complicate the tax system. The Scottish economy needs to attract talent and investment from the rest of the UK and globally to thrive and remain competitive.
“Simplifying the tax system is as much value to businesses and individuals as direct financial support, as it reduces administrative burden and associated costs. Holyrood must resist the temptation to continue to tinker with the tax system and create further deviation from the rest of the UK.”