Historic day as Scotland sets income tax rates for the first time

The Scottish Government’s Finance Minister, John Swinney, has today delivered Scotland’s Budget, the first in which Scotland assumes the power to set its own income tax rate. Although the overall income tax will remain in line with the rest of the UK, the Chartered Institute of Taxation (CIOT) is calling for greater awareness of Scottish taxpayer status and greater transparency around how their tax is being distributed.

The Scottish Rate of Income Tax (SRIT) was introduced by the Scotland Act 2012; the measure enables the Scottish Government to set a Scottish rate of income tax, which affects the overall rates paid by Scottish taxpayers.

Moira Kelly, Chair of the CIOT’s Scottish Taxes Sub-Committee commented:

“This is a momentous day for Scotland and marks a significant step forward in the devolution of fiscal powers north of the border. The income tax rates are to remain the same as in the rest of the UK for the time being, but far greater autonomy over rates and bands is due to be devolved as early as 2017 and may induce the Scottish Government to alter Scotland’s income tax landscape in the near future.

“Whilst there may appear to be no immediate impact on the Scottish taxpayer, this new autonomy underscores the need for greater communication between HMRC and taxpayers in Scotland. Public awareness remains low which is a concern as the smooth transition to a new rate is dependent on those affected knowing how they will be affected. For the sake of transparency, we have previously called for the proportion of income tax going directly to the Scottish government to be explicitly detailed on the P60 form.”

The CIOT has also commented on changes to the Land and Buildings Transaction Tax. Moira Kelly said:

“Mr Swinney also announced a new Land and Buildings Transaction Tax levy on the purchase of second homes from April 2016. The levy is 3% for a £40k property rising to 15% for a £750k+ property. Those looking to purchase a property for buy-to-let or simply as a second home will now be faced with a significantly increased LBTT bill, compounded by the recent phased restriction on tax relief for buy-to-let financing costs.

“After the Westminster Government copied the Scottish Government in abolishing the ‘slab’ system for taxing residential property sales, this is now Scotland copying Westminster in bringing in a second home levy. We can draw two lessons from this. First, that a politically attractive idea launched in one place may be copied – and perhaps quickly – on the other side of the border. Second – and the ‘no change’ approach to the income tax rate feeds into this too – that political as well as economic competition could well act to keep the devolved and Westminster tax systems in broad alignment, with the exceptions being on matters where differences reflect the circumstances and calculations of both jurisdictions. This could well hold true even after more extensive tax devolution kicks in.”

Note to editors

1. The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,500 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.