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The Scottish government recently outlined a series of changes to its tax policy within its Draft Budget 2018-19. Amongst these amendments were changes to income tax rates and bands, and the creation of a new relief for first-time homebuyers. Here, we analyse the alterations made by the Scottish government, and consider them in the wider context of devolution in the UK.

Changes affecting Scottish taxpayers

Alterations to income tax

In the Scottish Draft Budget, which was presented on 14 December, Finance Secretary for Scotland, Derek Mackay, outlined a range of changes to the way in which income tax is charged for Scottish taxpayers.

Mr Mackay confirmed an increase in the higher rates of income tax, together with the introduction of two new income tax bands, as follows:

Scottish bands

Band name

Rate (%)

Over £11,850* – £13,850

Starter

19

Over £13,850 – £24,000

Basic

20

Over £24,000 – £44,273

Intermediate

21

Over £44,273 – £150,000**

Higher

41

Above £150,000**

Top

46

*Assumes eligibility for income tax personal allowance
**Where income exceeds £100,000 the personal allowance is reduced by £1 for every £2 over this amount

New Land and Buildings Transaction Tax (LBTT) relief for first-time homebuyers

The Finance Secretary confirmed that the main rates of LBTT will remain the same for the 2018/19 tax year. However, he also announced the introduction of a new relief for first-time homebuyers of properties worth up to £175,000. The relief will raise the zero tax threshold for first-time buyers from £145,000 to £175,000.

The Scottish government also announced that first-time buyers purchasing a property worth more than £175,000 will benefit from the relief on the portion of the price below the threshold. The Scottish government intends to consult on the details of the policy before the relief is introduced in 2018/19. 

Air Departure Tax (ADT)

The Scotland Act granted the Scottish government the power to replace Air Passenger Duty (APD) in Scotland, with a new ADT.

The change was set to take effect from 1 April 2018; however, following the Autumn Budget delivered by Chancellor Philip Hammond on 22 November, the introduction of ADT has been delayed in order to allow the Scottish government to resolve issues regarding the tax exemption for flights departing from airports in the Highlands and Islands of Scotland. 

Changes affecting Welsh taxpayers

Introducing the new Land Transaction Tax (LTT)

The Welsh government also recently made use of its devolutionary powers: in its Draft Budget, which was published in October, the Welsh government outlined the proposed rates for a new LTT which will replace Stamp Duty Land Tax (SDLT) in Wales from 1 April 2018.

From this time, those seeking to buy residential property worth up to £180,000 in Wales will pay no tax on the purchase. In a written statement published on 11 December, the Finance Secretary for Wales, Mark Drakeford, announced that individuals purchasing property worth between £180,000 and £250,000 will pay a proposed 3.5% in LTT, and those purchasing a home worth between £250,000 and £400,000 will pay 5%.  

New income tax powers  

From April 2019, the National Assembly for Wales will have the power to vary the rates of income tax payable by Welsh taxpayers.

From this time, each of the three UK rates of income tax are expected to be reduced by 10p. The National Assembly will determine the three Welsh rates of income tax, which will be added to the reduced UK rates, giving the overall rate of income tax that individuals in Wales will be required to pay. 

The devolution of tax powers to different regions of the UK will undoubtedly affect taxpayers across the country. As ever, Practice Track will be keeping up to date on all of the latest devolutionary announcements.