CIOT comment on UK Budget implications for Scottish taxes

3 Mar 2021

The Chartered Institute of Taxation (CIOT) has commented on the implications for the devolved tax regime in Scotland following today’s UK Budget.

The tax-free personal allowance and UK higher rate income tax threshold will increase by inflation from April, and remain frozen at this level until 2026.

The personal allowance freeze will apply in Scotland, because this power is reserved to Westminster.

Changes to the UK higher rate threshold will apply to Scots, but only if they earn income from savings or dividends. Tax on income from employment, pensions and rental income is taxed at Scottish rates of income tax.

The chancellor also confirmed that the zero rate threshold for UK Stamp Duty Land Tax will be extended to the end of June, before gradually returning to its original level of £125,000 in October. In Scotland, Ministers had already confirmed that the temporary increase to the threshold for paying Land and Buildings Transaction Tax (LBTT) will end on 31 March.

Alexander Garden, chair of the CIOT’s Scottish Technical Committee, said:

“Today’s income tax announcements confirm that from April, Scottish taxpayers earning more than £27,393 per year will pay more income tax than those in other parts of the UK. Below this amount, they will pay less, saving £21 per year.

“The Scottish Parliament agreed to its own income tax plans last week, and there is no reason to believe that these will change as a result of today’s announcements.

“From April 2022, the Chancellor’s decision to freeze the personal allowance until 2026 will apply to all Scottish income taxpayers.

“Scots who earn income from savings or dividends will also be impacted by the higher rate threshold freeze from April 2022, because income tax on these is set at a UK-wide level.

“It will be up to the Scottish Parliament to decide whether to replicate the Chancellor’s higher rate freeze in their own devolved income tax plans when they set their own Budget next year.”

On the extension of the UK Stamp Duty holiday:

“If Ministers come under political pressure to follow the Chancellor’s lead and extend the LBTT holiday, they should make their decision quickly to provide clarity and certainty for the housing market.

“There is always a risk that delaying tax changes of this kind will have a negative impact on the market by creating uncertainty and confusion for buyers and sellers.”