Whilst it might seem that a freeze is often a good thing, where the freeze is on allowances or tax bands then, unfortunately, it isn’t. It wouldn’t have made any difference to anyone paying tax at the lower or basic rates in 2017/18 but it did mean that higher rate taxpayers in Scotland would hit the £43,000 threshold – and therefore start paying the higher rate of tax – sooner than a taxpayer in the rest of the UK. So Scottish higher rate taxpayers would be paying more tax than their English counterparts, to the tune of £400 (being the difference between the thresholds, at 20%) from 6th April 2017.
However, as if differing tax bands wasn’t enough, with the passing of the Scottish Budget in February 2018, the Scottish Government brought in 5 tax bands, as opposed to the 3 that the rest of the UK have to get by on. These are as follows:
Rate % banding
Starter Rate 19 £11,851 - £13,850
Basic Rate 20 £13,851 - £24,000
Intermediate Rate 21 £24,001 – £43,430
Higher Rate 41 £43,431 - £150,000
Top Rate 46 £150,001 +
Scottish tax rates will, for the first time ever, then, be appreciably different to those in the rest of the UK. As to the impact, well, according to the Scottish Government, compared to elsewhere in the UK, those earning less than £26,000 will pay slightly less income tax next year than if they lived elsewhere in the UK. Compared to 2017-18, for a given level of income, every Scottish taxpayer earning less than £33,000 in 2018-19 will pay less income tax than they did in the previous year; overall, 70% of Scottish income tax payers will pay less tax in 2018-19 compared to the previous year and, when considering current basic rate taxpayers, 81% will pay less next year than they did this.
However, whilst there is no doubt that many Scottish taxpayers will be better off than they were before, there is no getting away from the fact that a significant number will be worse off, not only in terms of their position in the previous year but also as regards a similar earning individual elsewhere in the UK.
All happening in a pay packet near you from 5th April 2018……..