Scottish tax ready reckoners: direct effects of illustrative tax changes for 2024 to 2025

Introduction

A core tax principle of the Scottish Government is to engage with citizens and taxpayers and increase the understanding of tax policy in Scotland.^[1] As part of this approach, the Scottish Government has published Income Tax 'ready reckoners' annually since March 2021. This is in line with similar publications by HMRC and the Welsh Government.^[2] Since May 2023, the ready reckoners have been expanded to cover a broader range of devolved taxes. The purpose of the ready reckoners is to assist researchers and policymakers in considering the revenue impacts of illustrative policy changes in order to improve transparency and facilitate public understanding in this area.

The ready reckoners in Table 1 provide an order of magnitude of how much revenue could be raised, or foregone, over and above the policies announced for 2024-25. They are not intended to be exhaustive but can be used to understand the impacts of tax policy proposals on the Scottish Budget.

The ready reckoners have been produced by Scottish Government analysts using in-house economic models that are in line with the SFC's generalframework and assumptions for policy costings, as set out in detail by the SFC in May 2021.^[3] In practice, the SFC costs policies on a case-by-case basis, considering the details of each individual policy and the wider economic context. The ready reckoners should therefore be used to provide only an indication of the revenue impacts, as the SFC's final policy costings may differ.

The ready reckoners only show the direct impact on Scottish tax liabilities and receipts and do not include any wider effects on the Scottish economy, other devolved or local receipts, or UK Government revenues. Some behavioural responses are captured for Income Tax and residential and non-residential LBTT, but not for NDR; for example, decisions on whether to work or not, whether to re-locate to or from other parts of the UK or the world, or on buying a different property.

All ready reckoners assume that any tax changes will be implemented within a sufficiently short space of time so that there is no opportunity for forestalling behaviour. Forestalling refers to a situation where taxpayers move income, or transactions, across time for the specific purpose of minimising their tax burden (i.e. bring forward income, or a transaction, to avoid a future tax rate increase, or delay income, or a transaction, to benefit from a future tax rate decrease).