The Scottish Draft Budget 2018/19 – a new tax structure?

Scottish money
A “fairer and more progressive” tax system?

The Scottish draft Budget on 14 December 2017 was eagerly awaited following draft proposals from the Scottish Government for reforming the structure of income tax. Derek Mackay, the Scottish Cabinet Secretary for Finance and the Constitution, did not disappoint, revealing a revised income tax framework that he said would “make Scotland’s tax system fairer and more progressive”.

Income tax

Mr Mackay has complicated the tax structure by creating two new rates of tax – a starter rate at 19% and an intermediate rate at 21%. He has added 1% to the current 40% higher and the 45% additional rates. The proposed new income tax bands above any available personal allowance for 2018/19 are as follows:

Taxable Income


Band Name Tax Rate


0-2,000 Starter 19
2,001-12,150 Basic 20
12,151-32,423 Intermediate 21
32,424-150,000* Higher 41
Over 150,000* Top 46

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

There are various consequences to this new structure.

  • The personal allowance for 2018/19 has been set at £11,850 by Westminster. The Scottish basic rate band will run from this level to £24,000 of income – equating to projected median earnings.
  • The higher rate (41%) threshold for 2018/19 will be £44,273, compared with a figure for the rest of the UK of £46,350 (and a 40% higher rate).
  • Nobody in Scotland earning less than £33,000 will pay more income tax in 2018/19 than in 2017/18, according to Mr Mackay. That covers some 70% of Scottish taxpayers.
  • The basic rate remains at 20%, which should alleviate the concerns of pension providers about the operation of relief at source. However, there will be a band of intermediate rate taxpayers who will be able to reclaim an extra 1% relief on their pension contributions – in theory at least.

Land and Building Transaction Tax

A change to Land and Building Transaction tax (LBTT – the Scottish equivalent of SDLT) was made to help first time buyers, as was widely expected after last month’s Westminster Budget. However, Mr Mackay was less generous than Mr Hammond and only increased the nil rate slice of LBTT by £30,000 to £175,000 for first time buyers – giving them a maximum saving of £600 – starting in 2018/19. There does not appear to be a cap on property value, unlike Mr Hammond’s version.

It is important to bear in mind that because the Scottish National Party does not have a majority, the Budget only represents draft proposals and that these may change before becoming law (which is what happened for 2017/18).

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