Controversial new tax band introduced in Scotland

Scottish budget announces 45% tax rate for higher earners
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Peninsula Team, Peninsula Team

(Last updated )

The Scottish government has introduced a new tax band for higher earners in the 2024-25 tax year

Scottish deputy first minister Shona Robison has announced the 2024-25 Scottish budget regarding personal income tax and has ‘built on our values setting out in tough times to protect people and grow a sustainable economy’.

Robison stated how ‘beholden they are to Westminster austerity’. She continued saying they had no say in the budget regarding ‘corporation tax, no powers to mandate the real living wage for all, no ability to consider wind fall levies on excess profits and no options on wealth tax like capital gains tax’ finishing with ‘lass months Autumn Statement was the worst-case scenario for Scotland.’

Additionally, there will be a new tax band added to the Scottish tax system. Robison said: ‘We will therefore be adding a new income tax band to the Scottish system, the Advanced Rate, which will be set at 45% and will be set on incomes between £75,000 and £125,140.’ She continued saying, ‘In addition, I’ll also increase the top rate by 1% to 48%’.

The Scottish Fiscal Commission has estimated an additional £82m in revenue through the new tax band.

There will be no increase in the amount of income tax each threshold will pay, staying at the rates of 19%, 20%, 21% and 42%. However, the two lower band thresholds are to be increased to £14,876 and £26,561 along with inflation while the higher rate thresholds are set to stay the same. These are set at £43,662 and £125,140. Robison stated that those with the ‘broadest shoulders’ – top-earning taxpayers – should bear the responsibility.

Maintaining the higher rate thresholds is estimated to add £307m in income tax revenue.

Although these changes will affect many the statement made clear that it valued the public services sector highly and intended to freeze tax rates saying they ‘will not see their tax rates rise but when public services need investment and protection from Tory cuts this government does believe that those with the broadest shoulders should pay a higher rate of tax’.

Robison said: ‘We have chosen to create the new band threshold above the top of the unpromoted teachers’ salary scale, above a police chief inspector and above a band 8B nurse.’ However, MPs will fall into this new tax band. She continued: ‘Around 5% of top earners will be impacted by these rate changes, and of course, no one will pay more in council tax on their main home.’

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Robison also stated that these changes made by the Scottish government are predicted to bring in an additional £1.5bn of revenue by not following the same policies laid out by Jeremy Hunt last month.

Sean Cockburn, chair of the CIOT’s Scottish Technical Committee said: ‘The Scottish Government’s income tax plans increase divergence between higher earners in Scotland and the rest of the UK and we cannot rule out the possibility that divergence could widen further in the spring.

‘A sixth income tax band will inevitably mean further complications for affected taxpayers. That can include difficulties in knowing when different rates of income tax apply and how to ensure that the appropriate amount of tax relief is applied to things like Gift Aid and pension contributions.

‘The fact that income tax rates and bands for savings income and dividends remain reserved to the UK Parliament continues to mean a disjointed approach for Scottish residents, making it more difficult for Scottish taxpayers to easily understand their tax affairs where different sources of income are taxed differently.’

Bruce Cartwright CA, chief executive at the Institute of Chartered Accountants of Scotland (ICAS) said: ‘The Scottish government’s budget is both short sighted and fails to drive sustained economic growth.

Justine Riccomini, head of tax at ICAS said:‘Scotland already has five of the highest tax bands in the UK, and these changes will impact the growth of the Scottish economy, while only covering 5.4% of the budget deficit.'

‘Additional tax bands introduce more complexity into an already overcomplicated tax system. We have called for tax simplification for many years to make it easier for taxpayers to understand and engage with the system’.

Chris Campbell, Head of Tax at ICAS, said: 'Today's budget announcement reveals that anyone earning more than £28,867 will pay more income tax then their UK counterparts. Aside from the new advanced tax rate and the increase in the additional rate, today’s announcement has also not improved the tax burden on so-called 'middle earners'.

For more information on the payroll matters, visit BrAInbox today where you can find answers to questions like What's the minimum amount an employee has to earn to be entitled to statutory sick pay?

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