2023-24 Scottish Budget Tax changes

After a dramatic start, John Swinney delivered the Scottish government’s Budget for the 2023-24 fiscal year on Thursday 15 December 2022. We have outlined below the tax changes that individuals residing in Scotland should be aware of from a personal tax perspective.

Key takeaways from a Personal Tax perspective:

• The higher and top tax rates will each rise by 1% from April 2023 to 42% and 47% respectively
• The threshold at which people start paying the top rate of tax will drop to £125,140 from £150,000
• Starter to higher rate thresholds are frozen at 2022-23 levels
• The Additional Dwelling Supplement will rise from 4% to 6% on second property purchases

Income Tax

The starter to higher rate band thresholds remain frozen at 2022-23 levels, but in a blow to high earners the threshold for the top rate of tax has been lowered from £150,000 to £125,140.  This was somewhat expected given the announcement by the UK government last month. It was also announced that the higher rate of tax will increase from 41p to 42p in the pound and the top rate will increase from 46p to 47p in the pound, widening the disparity with English taxpayers. The 42% and 47% rates will affect only non-savings income (i.e. employment, property and pension income), with other types of income such as dividends or savings being taxed at the rates set by the UK government.

Band	Income Range	Rate
Starter Rate	£12,571 – £14,732*	19%
Basic Rate	£14,733 – £25,688	20%
Intermediate Rate	£25,689 – £43,662	21%
Higher Rate	£43,663 – £125,140**	42%
Top Rate	Above £125,140**	47%

 

* Assumes individuals are in receipt of the Standard UK Personal Allowance

** Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000

The freeze on the starter, basic, intermediate and higher rate tax thresholds will mean many people entering higher tax bands as their salaries rise. Higher and top rate taxpayers can expect to see a rise in their income tax liability with the new higher rates of tax and lowered top rate threshold.

The tax impact for a Scottish taxpayer earning £60,000, £100,000 or £150,000 as compared to the 2022/23 tax year are outlined below.

Income	2022/23 Income Tax		2023/24 Income Tax	Increase in Income Tax
£60,000.00		£13,075.10	£13,238.48	£163.38
£100,000.00		£29,475.10	£30,038.48	£563.38
£150,000.00		£55,128.80	£57,560.88	£2,432.08

 

In comparison to UK taxpayers, Scottish taxpayers with these level of earnings will pay between £1,800 and over £4,000 more in Income Tax.

Property Tax – LBTT and ADS

There will be no change to the main residential and non-residential bands of Land and Buildings Transaction Tax (the Scottish equivalent to Stamp Duty Land Tax). However, the Additional Dwelling Supplement (ADS), which affects purchasers buying a residential property when they already own another dwelling, will increase from 4% to 6%.

This takes effect almost immediately and the new increased ADS will apply to transactions settling on or after 16 December 2022. There is a transitional provision whereby it will not affect transactions where contracts have been entered into prior to 16 December 2022.

It is important for individuals considering purchasing residential property in Scotland to fully consider the implications of LBTT and the ADS. The tax will apply regardless of whether the second property is used as a holiday home or as an investment and homes overseas must also be taken into account when establishing whether ADS is chargeable.

Other points to note

• The Scottish Child Payment (a Scotland-only benefit for low-income families with children under the age of sixteen) will remain at the increased level of £25 per child per week.
• All other social security benefits under the control of the Scottish government will increase by 10.1%, the rate of inflation in September 2022.
• The non-domestic rates poundage will be frozen, with the Basic Property Rate remaining 49.8%. The Small Business Bonus Scheme (SBBS) will be reformed, with some transitional relief available for those no longer eligible for SBBS.
• Councils will be free to determine their own rates of Council Tax.

If you would like to discuss the implication of the Scottish 2023/24 Budget on your tax position, please reach out to your usual AAB contact.