Income tax to raise £18.8 billion

A new income tax band will raise additional revenue to deliver high quality public services and support the social contract with Scotland’s people, Deputy First Minister and Finance Secretary Shona Robison has announced.

The Advanced rate band will apply a 45% tax rate on annual income between £75,000 and £125,140. Other changes include an additional 1p being added to the Top rate of tax and the Starter and Basic rate bands increasing in line with inflation. There are no changes to the Starter, Basic, Intermediate and Higher tax rates. The Higher rate threshold will be maintained at £43,662.

The Scottish Fiscal Commission estimates that overall Income Tax will raise £18.8 billion in 2024-25.

The Commission also estimates that next year the Scottish Government will raise around £1.5 billion more in income tax revenue than if it had followed the Income Tax policy of the UK Government, as a result of changes to rates and bands it has brought in since 2017-18.

The Finance Secretary also announced plans to:

• Freeze the non-domestic rates poundage at 49.8 pence, delivering the lowest poundage rate in the UK for the sixth year in a row. The Intermediate Property Rate and Higher Property Rate will rise in line with inflation to 54.5 pence and 55.9 pence respectively

• Offer 100% rates relief for hospitality businesses in island communities, capped at £110,000 per business

• Maintain existing Land and Buildings Transaction Tax (LBTT) rates and bands at their current levels. Relief allowing first-time buyers to claim a reduction in the amount of LBTT they need to pay will continue

• Increase the standard and lower rates of Scottish Landfill Tax to continue to support Scotland’s circular economy ambitions, while ensuring these do not encourage cross-border movement of waste

Ms Robison said:

“Managing the cumulative impacts of the UK Government’s disastrous Autumn Statement, high inflation and ongoing economic damage from Brexit means we have had to make difficult choices and prioritise support for those who need it the most.

“We are proud that Scotland has the most progressive Income Tax system in the UK, protecting those who earn less and asking those who earn more to contribute more. This in turn allows us to provide a more comprehensive set of services than in the rest of the UK.

“These targeted tax decisions are expected to increase our Income Tax revenue by £389m and have been carefully balanced with the needs of individuals, businesses and the wider economy, while ensuring we continue to build upon our progressive approach to taxation.

“Our decisions on tax in this budget – including both Income Tax policy changes and the freeze in Council Tax – provide a net benefit to around 60% of Scottish households, with around 80% of households paying no more tax as a result of these measures.

“On non-domestic rates, the support I have outlined for businesses is estimated to be worth £685 million this year and ensures that over 95% of non-domestic properties continue to be liable for a lower property tax rate than anywhere else in the UK.”

Background

The Scottish Income Tax bands and rates proposed in the 2024-25 Budget are:

*Under the UK Government’s Personal Allowance policy, those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

The UK Government confirmed in the 2023 Autumn Statement that the UK-wide Personal Allowance will remain frozen at £12,570.

The Small Business Bonus Scheme, which offers up to 100% relief from non-domestic rates, will be maintained at the rates and thresholds introduced in 2023-24. 100% rates relief will also be available for hospitality businesses on islands, as defined under the Islands (Scotland) Act 2018.

The standard and lower rates of the Scottish Landfill Tax will increase to maintain consistency with planned UK Landfill tax increases to:

• From £102.10 to £103.70 per tonne (standard rate) from 1 April 2024

• From £3.25 to £3.30 per tonne (lower rate) from 1 April 2024

The Scottish Government has allocated £144 million to enable local authorities to freeze council tax rates at their current levels. Final decisions by councils on the rates in their respective areas are expected to be made by mid-March 2024.