Tax  

Scottish higher rate tax band frozen

Scottish higher rate tax band frozen

The Scottish finance minister has proposed increasing Scotland’s starter and basic tax bands thresholds in 2019 but freezing the higher rate one.

In his draft budget delivered yesterday (December 12), the cabinet secretary for finance Derek Mackay announced increasing the starter and basic band thresholds by inflation for the 2019/20 tax year to "protect the lowest and middle earning" taxpayers.

The tax-free personal allowance will increase from £11,850 to £12,500 while the threshold for the starter rate of income tax - currently set at 19 per cent - will increase from £13,850 to £14,549.

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Meanwhile the intermediate rate of 21 per cent will start at £24,944 instead of £24,001, with those below this paying the basic rate of 20 per cent.

But Mr Mackay announced the higher rate threshold, at which point taxpayers pay 41 per cent, would be frozen at £43,430.

The Scotland Act 2016, introduced in the wake of the Scottish independence referendum of 2014, gives the Scottish Parliament the power to set its own income tax rates and bands, which affects issues such as pension tax relief.

Delivering the draft budget, Mr Mackay said: "At a time of strained growth, prolonged austerity and growing economic uncertainty, all as a result of a failing UK government, now is not the time to cut tax for the highest earners at the expense of our public services."

Mr Mackay also announced he would not increase any rates of income tax, a decision he said would see 99 per cent of Scottish taxpayers see no increase in the tax they pay.

In the Autumn Budget the UK Chancellor of the Exchequer announced that from April taxpayers in the UK earning up to £50,000 would not pay higher rate income tax.

Last year a new five-band income tax system was introduced in Scotland, in an effort to raise additional revenue from "those who can most afford it". 

Steven Cameron, pensions director at Aegon, said the proposals in the draft budget would see many of those living north of the border pay substantially more income tax than someone on equal earnings in the rest of the UK.

He said: "Someone earning £50,000 in England, Wales or Northern Ireland would pay £7,500 in income tax from the 2019/20 tax year, while someone earning the same figure in Scotland would pay £9,044 which is £1,544 a year more or £128 a month extra.

"This is a significant sum and will increase pressure on the Scottish Government to demonstrate what extra services Scottish taxpayers are receiving for the difference.

"The one silver lining concerns pensions tax relief which is granted at the individual’s highest marginal income tax rate. This means someone in Scotland earning £49,999 will be entitled to up to 41 per cent tax relief on their pension contributions, whereas someone earning the same in the rest of the UK would be entitled to only 20 per cent tax relief.

"For this individual in Scotland, a pension contribution of £6,570 would avoid them paying higher rate tax entirely."