New Scottish tax framework published as consultation on LBTT reform gets underway

17 Dec 2021

The Scottish Government has published a new framework for tax policy making alongside a consultation on Land and Buildings Transaction Reform. Alongside this, studies on the impact of changes to income tax in Scotland have been published by the Scottish Government and HMRC. Find out more below.

The Scottish Government has published its first Framework for Tax, a document setting out its approach to tax policy making over the course of the 2021-26 session of parliament in Scotland.

Ministers also used the document to highlight the areas of tax policy that they would like to see devolved to the Scottish Parliament as part of the upcoming Fiscal Framework review. They include full control over income tax and National Insurance, alongside the devolution of VAT.

Writing in the foreword, Finance Secretary Kate Forbes said the framework demonstrated the Scottish Government’s "commitment to open government, transparency and collaborative working".

The framework was published alongside a number of other Scottish tax policy documents. These included:

  • An analysis of responses received to the government’s consultation on the framework, which ran from August to October this year. The CIOT participated in this and is referenced several times in the document
  • A call for evidence and views on the Land and Buildings Transaction Tax (LBTT) Additional Dwelling Supplement (ADS). This consultation will run until 11 March 2022 and is the first step in the process of reviewing how the ADS operates, as promised in the SNP’s 2021 election manifesto
  • A policy evaluation of the impact of the introduction of the Scottish Government’s five rate/band system of income tax in 2018/19. The review looks at how the income tax regime has performed against the government’s four tests of raising revenues, increasing progressivity, protecting lower earners and supporting economic growth

Alongside the latter of these, HMRC has also published research and analysis into changes in Scottish taxpayer behaviour following the income tax changes of 2018/19.

The research concludes that moving to a system of five rates and bands for non-savings, non-dividend income tax – which included the introduction of a new starter (19p) and intermediate (21p) rate of tax, alongside increases to the higher (41p) and top (46p) rates of tax compared to the rest of the UK, provided ‘limited evidence of Scottish taxpayers lowering their declared income in response to increasing tax rates”. Changes in behaviour, where observed, tended to increase with income, which researchers said was “expected”.

The research did not consider the impact of migration (taxpayers between Scotland and the rest of the UK) as a result of income tax changes.

Chris Young, CIOT External Relations team.