Top Scottish Takeaways

No, I am not referring here to chicken or pizza, but rather the fact that Thursday 9 December saw the Scottish Finance Secretary, Kate Forbes, deliver this year’s Scottish Budget speech to MSPs at Holyrood.

Each year since the Scottish Government and Parliament were first established in 1999, control over large portions of public spending in the country have been devolved from Westminster. This Budget was the first pre-Christmas version for three years and came after the UK version for a change. It also has much more chance of passing the Holyrood vote without amendment, given the Green/SNP cooperation agreement that is now several months old.

However, not all tax and spending powers for Scotland reside in Edinburgh. Many are ‘reserved’ to Westminster, including capital taxes and defence spending, to name but two. With that in mind, and by way of some key takeaways from this year’s speech, here are the headlines:

1. Income Tax rates remain unchanged, as do the higher rate and additional rate thresholds, but increases to the starter and the basic rate bands mean that Scottish employees with income of less than £27,850 are better off than anywhere else in the UK. Employees earning more than £27,850 are worse off with employees on £50,270 worse off by around £1,545.80.
   
   If we add to that the National Insurance contribution (NIC) changes due in April 2022, (which are linked to UK, rather than Scottish tax thresholds), there is a slice of income for Scottish taxpayers which attracts a very high marginal rate of overall deductions compared to their counterparts elsewhere in the UK.
   
   This brings a need for those with some control over how they are remunerated to plan their options for the coming year carefully.

2. Minimum wage for those in the public sector, as well as employees working in social care, will rise to £10.50 per hour and £10.02 per hour respectively.
   
   
3. The freeze on Council Tax rates will be lifted for the 2022/23 tax year, with local authorities given complete flexibility to set next year’s rates, for the first time in 15 years. With a number of councils experiencing significant budgetary pressures at present, it remains to be seen what the expected increases will be.
   
   
4. The SNP’s working agreement with the Scottish Greens may have had some bearing on the continued commitment to introduce some form of Air Departure Tax. However, this is one power that has yet to be devolved, and there remains the Highlands and Islands exemption where a workaround is still needed. Also announced were a raft of spending plans to aid the energy transition and decarbonise public transport, although if you look under the covers, real increases in funding levels were not that great.
   
   
5. Whilst no changes were introduced to Land and Buildings Transaction Tax (LBTT), the Scottish Government did announce a proposal to review the operation of the Additional Dwelling Supplement (ADS) 4% surcharge. However, this is likely to be a review of its application in practice, rather than any change or abolition of the surcharge itself.
   
   
6. 100% rates relief for retail, hospitality and leisure business ends in March next year, although a 50% relief will remain in place for the following three months for most businesses, up to £27,500 per ratepayer.

What many in Scotland will be looking for on the back of this Budget is progress with rebuilding the Scottish economy, without which the tax receipts forecast in Kate Forbes’ speech will not arrive. No doubt Nicola Sturgeon and the SNP will be tracking its progress too, given the promise of IndyRef2 at ‘an appropriate point’ in the recovery. We’re not there yet; exactly when remains to be revealed.

The information and/or any reference to specific instruments contained in this document does not constitute an investment recommendation or tax advice. Capital at risk. The value of your investments and the income from them may go down as well as up, and you could get back less than you invested. Tax rules are subject to change and taxation will vary depending on individual circumstances.