Mini-budget

No Scots paying lower tax than rest of UK

Income tax own pic
Scots now pay the highest income tax in the UK

Chancellor Kwasi Kwarteng’s income tax cuts mean no one in Scotland is paying less tax than those in the rest of the UK.

In England the cut in the basic income tax rate to 19% now applies from the nil rate of £12,570 up to salaries of £50,270.

Ahead of any changes in Scotland, the 19% rate will only apply to salaries between £12,571 and £14,732, increasing to 20% for those earning £14,733 to £25,688 and then 21% to £43,662. 

Sean Cockburn, chair of the Chartered Institute of Taxation’s Scottish technical committee, said: “Bringing the reduction to the UK basic rate forward by a year means that, as things stand, from next year, Scottish ministers will be unable to say that some Scots face lower tax bills compared to the rest of the UK.

“We won’t know how the Scottish Government intends to respond until later this year so absent this detail, it raises the prospect that all Scottish taxpayers earning more than £14,732 will now pay more income tax compared to taxpayers in the rest of the UK.

“As an illustration, someone in Scotland earning £27,850 would have paid the same amount of tax as someone living in the rest of the UK this year. The changes announced by the Chancellor mean that from next year, they would pay £152.80 more.

“The abolition of the additional rate tax raises the prospect of significant income tax divergence for taxpayers with income above £150,000.

“In Scotland, the ‘top’ rate of tax is charged at 46p. Someone earning £200,000 next year would pay £6,045.80 more in income tax compared with someone in the rest of the UK”.

Additional rate taxpayers in 2020/21 represented 0.6% of Scottish taxpayers but provided 16.1% of total income tax receipts.

Daniel Hough, financial planner at Brewin Dolphin, said: “The changes to the tax regime made by the chancellor in today’s budget will likely put further pressure on the Scottish Government to change Scotland’s tax system.

“With the rise of remote working following the Covid-19 pandemic, we could find a situation whereby those in highly remunerated jobs decide to live and pay tax in England but work in Scotland. Ultimately, this would hurt Scottish tax takings if it is not addressed in some way soon.

Full Budget details here – including cuts to business taxes

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