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Scotland to control its own income tax rates

Scotland is to have control over its own welfare benefits and income tax and there will be no restrictions on the thresholds or rates that the Scottish parliament can set, a report revealed.

The Smith Commission’s report into further devolution of powers to the Scottish parliament, published today (27 November) revealed that the Scottish parliament will have “new powers to make discretionary payments in any area of welfare without the need to obtain prior permission from DWP [Department for Work and Pensions]”.

Income tax will remain a shared tax and both the UK and Scottish parliaments will share control.

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Within this framework, “the Scottish parliament will have the power to set the rates of income tax and the thresholds at which these are paid for the non-savings and non-dividend income of Scottish taxpayers”.

There will be no restrictions on the thresholds or rates that the Scottish parliament can set, the report stated.

However, all other aspects of income tax will remain reserved to the UK parliament, including the imposition of the annual charge to income tax, the personal allowance, the taxation of savings and dividend income, the ability to introduce and amend tax reliefs and the definition of income.

Income tax will still be administered and collected by HM Revenue and Customs, since it will still apply on a UK-basis, despite there being different rates and thresholds in Scotland.

Lord Smith of Kelvin, head of the commission, has been working with Scotland’s five main parties to reach broad agreement, by 30 November, on further devolved powers following the Scottish referendum earlier this year.

After nine plenary sessions of cross-party talks, and a series of meetings with Lord Smith, this agreement was reached yesterday, with the report recommending that the Scottish parliament

Lord Kelvin stated: “The composition of the parliament’s income will change markedly. Significantly more devolved spending in Scotland will now come from tax raised in Scotland with the remainder coming from the block grant provided by the UK government.

“To balance this increased financial responsibility, the parliament will be given increased borrowing powers, to be agreed with the UK government, to support capital investment and ensure budgetary stability.

Currently, the UK government has responsibility to produce draft clauses implementing the consensus set out in the report, and has stated it will publish those clauses by 25 January 2015.

ruth.gillbe@ft.com