Press release: CIOT comment on draft Scottish Budget

Today’s Scottish Budget means that higher earners will continue to pay more in tax than their counterparts elsewhere in the UK, while lower earners continue to be slightly better off north of the border.

Today’s Scottish Budget means that higher earners will continue to pay more in tax than their counterparts elsewhere in the UK, while lower earners continue to be slightly better off north of the border.

The Chartered Institute of Taxation noted that the point where a taxpayer will pay more income tax in Scotland than they would in the rest of the UK rises as a result of today’s Scottish Budget from £26,993 to £27,243 because of increases to the thresholds announced by the Scottish Government that take inflation into account.

Scottish taxpayers earning less than £27,243 will pay less in income tax thank taxpayers elsewhere in the UK because of the lower Scottish starter rate of income tax, introduced in 20181.

The Institute also noted that forthcoming increases to National Insurance thresholds planned by the Westminster Government would have an impact on all income tax payers in Scotland as well as elsewhere in the UK2.

Alexander Garden, chair of the Chartered Institute of Taxation’s Scottish Technical Committee, said:

“While Scotland remains on a broadly similar tax path to last year, the immediate challenge facing the Scottish Government will be ensuring that a majority can be found in the Scottish Parliament to ensure that Scottish Income Tax can be collected in the new tax year.

“However the full picture remains unclear because we need to wait until the UK Budget on 11 March for confirmation of the impact of UK changes on Scottish taxpayers and the potential for further divergence3.

“This includes the planned UK-wide increase to the level that people start paying National Insurance to £9,500 and – although it seems unlikely – the potential for further increases to the tax-free personal allowance.

“Scots who earn income from sources such as savings and dividends are not impacted by today’s announcements as these are reserved to Westminster. They will have to wait until the UK Budget to know what income tax they will pay in the coming year.”


Notes for editors

1. The CIOT’s initial analysis of the figures published by the Scottish Government suggests the following Scottish Income Tax liabilities for the 2020/21 tax year compared with likely income tax liabilities in the rest of the UK. It assumes that there will be no further changes to UK rates of income tax which will not be known for sure until the UK Budget on 11 March.

The 19p Scottish starter rate of tax applies to income between £12,501 and £14,585, with the 20p basic rate applying on income between £14,586 and £25,158. On earnings between £25,159, and £43,430, the 21p intermediate rate of Scottish Income Tax will apply in 2020/21. Between £43,431 and £150,000, Scottish taxpayers pay a 41p higher rate of tax and do so at a lower level of income compared with the rest of the UK (where the rate is 40p). They also pay a higher top rate of tax compared to the rest of the UK (46p v 45p) on income above £150,000.

Although Wales has the power to set a Welsh Rate of Income Tax, the Welsh Government has proposed that income tax rates and thresholds will remain on a par with England in 2020/21. 

2. The changes to National Insurance were announced by the chancellor on 30 January.

3. Income tax divergence can be the result of decisions made at both Westminster (raising the higher rate threshold to £50,000 in 2019/20) and at Holyrood (for example in initially freezing the Scottish higher rate threshold at £43,000 for 2017/18 and then with the creation of new rates and bands of Scottish Income Tax from 2018/19.

4. A picture of Alexander Garden can be downloaded via the following link.