The Scottish Government, as expected, has chosen to exercise its powers further to change income tax rates and thresholds that apply to non-savings non dividend (NSND) as of the 2018/19 tax year. The new bands and tax rates will be as follows:
The change will result in tax reductions for lower earners with higher earners paying progressively more tax. Anyone earning less than £33,000 will essentially pay less tax from 2018/19 with those earning more than this amount paying more. What this boils down to is that the top 30% of earners in Scotland will be paying more tax.
The Scottish Government have clearly thought the changes through and describe the changes as progressive, but will the additional £164 million raised for public services really filter through after the costs of implementation are factored in? HMRC alone said it expects to spend £26.8m per annum by 2019/20 on implementing changes in income tax rules in Scotland.
One of the key issues for us will be the impact on pension’s tax relief savings and dividend income. A change in the starting rate of tax to 19% immediately creates issues for the industry. Will Scottish taxpayers continue to receive basic rate tax relief at 20% and then have to submit a tax return to declare the 1% overpayment of relief? The ripple effect of such a small change in tax can’t be underestimated. Politics aside this will be a challenge for the industry and HMRC. The devil will be in the detail but let’s hope we are progressive enough to make this work efficiently and ensure that as much of the £164 million hits the public purse.