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Scottish Budget December 2016

There were no real tax surprises, nor any MACO performancesignificant changes announced on the 15 December that were not already trailed before in earlier statements by Scottish Ministers.

As expected, the main tax headline was that there will be a divergence of income tax thresholds in the UK with the Scottish higher rate threshold coming into force at £43,430. (Note: the threshold was subsequently lowered to £43,000 by the SNP Government following negotiations with the Scottish Green Party to secure their support to get the Scottish Budget passed in the Scottish Parliament in February 2017). The threshold for higher rate tax in England, Wales & Northern Ireland will be higher next year at £45,000. 

There will be no changes to the rates of Land & Building Transactions Tax (LBTT) bands, nor were any changes announced to the 3% additional dwelling supplement for 2017-18. See our guide Tax Rates 2017-18: Property Transaction Taxes >more

Scottish business rates will be brought into line with the rest of the UK and the small business rates threshold was extended from £10,000 to £15,000.

Scottish Rate of Income Tax

In 2017-18 income tax rates for Scottish tax payers will be the same as those for the rest of the UK – basic rate 20%, higher rate 40% and additional rate 45%. See our Tax Rates 2016-17 for the full income tax rates and main personal allowances and reliefs.

However, the threshold at which the 40% rate will be payable will only increase to £43,430 from April 2017 compared to £45,000 in the rest of the UK. Derek MacKay also confirmed that the higher rate threshold will rise by a maximum of inflation in all the future years of the current Parliament.

In effect this will mean a Scottish resident higher rate taxpayer will pay £314 more in tax than an equivalent taxpayer in the rest of the UK in 2017/18.

It is also likely that the divergence of thresholds will continue as the UK Chancellor Philip Hammond re-confirmed the goal of setting a £50,000 higher rate threshold by 2020 in the rest of the UK in the Autumn Statement. 

Scottish Business Rates & Business Growth Fund MACO project

Designed to boost economic growth, Scottish Non-Domestic Rates in 2017-18 will be reduced by 3.7% to 46.6p, which brings Scotland into line with the rest of the UK.

The Small Business Bonus Scheme (SBSS) is to be increased so that there will be 100% relief for rateable values up to £15,000 and 25% up to £18,000.

The large business supplement will remain at 2.6p, which is higher than in the rest of the UK. However, it is proposed that threshold will increase which will mean that the supplement only applies to properties with a rateable value of more than £51,000.

Derek MacKay also confirmed the Scottish Government's commitment to providing a £500m Business Growth Fund (BGF), aimed to deliver financial support for small businesses. The BGF was announced by First Minister, Nicola Sturgeon earlier this year in September 2016.

Other additional measures announced, included:

- Council Tax increases for properties in bands E, F & G. The additional revenue raised will be retained by Scottish councils. It had been announced that the additional monies raised from these properties would be used by the Scottish Government for direct investment in schools. However, Derek MacKay announced that the investment in education will now be funded centrally. Councils will have the option of increasing council tax by up to 3%.

- An Air Departure Tax (ADT) Bill was announced as Air Passenger Duty will be devolved to Scotland. ADT will be operational by 2018 and will be cut by 50% by the end of this Parliament.

- Scottish Landfill Tax will rise with inflation.

- £100m+ investment in digital and mobile infrastructure to improve digital connectivity; £140m for Energy Efficient investment programmes; and, £470m capital funding was announced for housing in 2017/18.

Review our Autumn Statement update >more

We are on hand to help you if you would like to discuss any of the issues raised in the Scottish Budget 2016.

Give you usual contact at Martin Aitken & Co or Martin Aitken Financial Services Ltd a call or get in touch with us by clicking on the contact us button.

All statements within this briefing note are based on our understanding of the changes within the 2016 Scottish Budget. You are recommended to seek professional advice before taking any action on the basis of the contents of this summary. Publication date: 19th December 2016.


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