The Scottish government has used its devolved income tax powers to create two new tax bands for Scottish residents.
Announced in its 2018/19 Budget, low and middle income earners have been largely protected with the creation of a ‘Starter Rate’ and an ‘Intermediate Rate’.
The new Starter Rate of 19 per cent is for those earning £11,850 (the personal allowance threshold) to £13,850. The ‘Basic Rate’ will then be frozen at 20 per cent for those earning £13,851 to £24,000.
For middle earners, a new Intermediate Rate of 21 per cent has been introduced for those making £24,001 to £44,273. ‘Higher Rate’ (£44,274 to £150,000) and ‘Top Rate’ (Above £150,000) taxpayers will see their tax increase by 1 per cent to 41 per cent and 46 per cent respectively.
The two new income tax brackets have been introduced to make the system ‘more progressive’, with Scottish government analysis of the changes suggesting that 70 per cent of Scottish income tax payers will pay less tax next year.
‘Our new, fairer, income tax policy will protect the 70 per cent of taxpayers who earn less than £33,000 a year and ensure they pay less tax next year for any given income, whilst asking those earning more than £33,000 to pay a proportionate amount more to support our public services,’ said Finance Secretary Derek Mackay.
‘Our plans also ensure that over half of taxpayers will pay slightly less in Scotland next year than they would in the rest of the UK, protecting low incomes and supporting the economy.’
The tax changes will raise an additional £164 million of revenue to support the Scottish government’s investment plans, including spending an extra £400 million on health, without reducing spending on police and fire services, social care or education.
In summary, the income tax proposals for Scottish residents in 2018/19 are:• A new Starter Rate of 19 per cent will be introduced for those earning between £11,850 and £13,850
A Basic Rate of income tax at 20 per cent for those earning over £13,850 A new Intermediate Rate of 21 per cent for those earning over £24,000 – however as a result of the new Starter Rate taxpayers earning less than £33,000 will pay no more in tax for given incomes A Higher Rate of 41 per cent on incomes over £44,273 to £150,000 A Top Rate of 46 per cent on incomes over £150,000.