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Scottish Fiscal Commission's verdict

Higher rate taxpayers ‘likely to switch residency’ after Budget

Dame Susan Rice

Dame Susan Rice: ‘people may think twice about coming to Scotland for a job’ (pic: Terry Murden)


Higher rate taxpayers in Scotland are expected to switch their residency south of the border following Derek Mackay’s decision to widen the thresholds.

In Wednesday’s Budget Mr Mackay maintained the threshold for the higher rate of income tax (at 41p in the pound) at £43,430, rather than align it with the rest of the UK, where it will increase to £50,000 (at 40p) from April.

The Scottish Fiscal Commission, the independent tax and economics forecasting group, today said that withholding the threshold increase announced by Chancellor Philip Hammond for England and Wales taxpayers, will mean those earning £50,000 will pay £1,540 more tax in Scotland.

“We expect this to start to have an effect on tax residency decisions,” said the Commission in its analysis of the Scottish Budget.

It said its calculation on residency behaviour included migration and those who split their lives between Scotland and elsewhere in the UK.

“We expect the latter category to account for most of the behaviour change in response to higher income tax in Scotland by higher and additional rate taxpayers. We estimate that changes in taxpayer residence behaviour will lead to a reduction in income tax in Scotland of £6 million in 2019-20.”

Income tax own picTogether with the impact of national insurance contributions raising the effective tax rate to 53%, the Commission said the total reduction in income tax would be £13m.

Mr Mackay expects to raise an additional £68m, mainly from 343,000 higher and additional rate taxpayers paying an extra £210 a year.

The commission’s head of economy, income tax and VAT, David Stone, said: “We try to think about how it will affect behaviour.

“If you are currently sat at £45,000 and facing a 53% marginal tax rate, you put student loan repayments and pension contributions on that as well, you could be taking home as little as 30p in the pound.”

Commission chief executive John Ireland said: “We believe that bigger gap will affect where people chose to locate over time, both people thinking of coming to Scotland and people living in Scotland who can either leave Scotland or change their residency.

“We think it will knock off about £6 million from income tax revenues.”

Commission chairwoman Dame Susan Rice added that the tight labour market in Scotland may force people to “think twice about coming to Scotland for a job”.

The commission has raised its economic growth forecast for 2018 to 1.4% rise from its 0.7% prediction in May.

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