The 2020 Scottish Budget

4 Feb 2020

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The Scottish Budget was delivered today by Kate Forbes of the Scottish National Party (SNP). Given the upcoming UK Budget on 11 March, a final Budget proposal was always going to be challenging and the Scottish government has reserved the right to revisit the Budget in light of the announcements to come from London next month. Similarly, there is concern relating to the future EU negotiations.

The SNP remains a minority government and, as last year, they will require the support of at least one other party to pass this Budget.

Scottish income tax

There have been no changes to the rates of income tax, however the starter and basic rate tax bands will increase in line with inflation, with no Scottish taxpayers seeing any increase in their income tax bills on the same income. The changes in the tax bands are shown in the table.

Fig 1: changes in the tax bands in Scotland

The personal allowance is set by the UK government and it has previously been announced that this will be held at £12,500 for 2020-21. The table assumes that those in receipt of the income qualify for a full personal allowance on their income up to £100,000. The personal allowance is reduced by £1 for every £2 of income over £100,000.

The Scottish income tax rates only apply to Scottish taxpayers and only to their non-savings and non-dividend income. This includes salary, rent, trading profits and discretionary trust income distributions. The tax on savings and dividend income follows the rates table used by the remainder of the UK.

The key differential to the rest of the UK remains the wide gap between the point at which the higher rate tax applies and the point at which the National Insurance rate reduces to 2% on earnings above £50,000. For employment income between £43,431 and £50,000, Scottish taxpayers pay a combined income tax and National Insurance rate of 53%.

Land & Buildings Transaction Tax (LBTT)

The only change being made to LBTT is to introduce a new 2% band applying to non-residential leases where the net present value of the lease is worth more than £2 million. This legislation is to be put before Parliament with an implementation date of 7 February 2020. Contracts entered into before 6 February should not be impacted.

If you would like more information on Scottish tax issues, please speak to your usual Saffery Champness partner or contact Elaine McInroy.

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