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Scottish government sets out income tax proposals

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The Scottish government has set out four alternative proposals for new Scottish income tax rates and bands in a discussion document to inform how the government should use its new income tax powers in the forthcoming Scottish Budget on 14 December. The discussion paper, ‘The role of income tax in Scotland’s Budget’, contains a comparison of the income tax policies put forward by all the main Scottish parties. The proposals are:

  • Approach 1: Three tax bands – increases both the higher and additional rates of income tax by 1p (to 41% and 46% respectively), with the basic rate unchanged at 20%;
  • Approach 2: Four tax bands – introduces a new income tax band for low earners based around the median income, giving 20% on earnings between £11,850 and £24,000, 21% on earnings between £24,001 and £44,290, and 41% on earnings between £44,291 and £150,000, with the additional rate increased either by 3p to 48%, or by 5p to 50%;
  • Approach 3: Five tax bands – splits the current higher rate band at £75,000, with earnings up to £44,290 following Approach 2, an extra 1p on earnings between £44,291 and £75,000 (to 41%), an extra 2p on earnings between £75,001 and £150,000 (to 42%) and 50% on earnings above £150,000; and
  • Approach 4: Six tax bands – introduces a new 19% rate on earnings between £11,850 and £15,000, with 20% on earnings between £15,001 and £24,000 and other rates and bands following Approach 3.

Announcing publication of the paper, Scottish finance secretary Derek Mackay said: ‘I am seeking a well-informed and considered debate on the use of our powers, recognising that in a parliament of minorities common ground on tax must be found to secure a budget for Scotland. We have therefore set out alternative approaches for discussion, that we believe could better meet the four tests we have established.’ These four tests are:

  • revenue: changes should raise additional revenue;
  • progressivity: changes should increase the progressivity of the tax system;
  • protecting lower earners: taxpayers in lower income brackets should not pay more tax; and
  • economic growth: changes must support the economy.


Moira Kelly, chair of the CIOT Scottish technical committee, commented: ‘Even if a political consensus emerges in favour of major changes to income tax in Scotland, these policy decisions cannot be considered in isolation from the wider UK tax regime.’

‘A markedly different income tax regime north of the border may, for example, incentivise self-employed businesses to incorporate in order to shift their liabilities from higher rates of Scottish income tax to lower rates of UK-wide corporation and dividend taxes,’ Kelly suggested.

‘Similarly, in the case of very high earners, it shouldn’t be ruled out that those people could choose to relocate to other parts of the UK or elsewhere if significant amounts of tax were at stake.’