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Scottish Budget: income tax system to be overhauled

Two new income tax bands are set to be introduced from April 2018

Scottish Budget: income tax system to be overhauled

Income tax rates are set to be overhauled in Scotland, with cuts for low earners, hikes for high earners, and new tax bands laid out in the SNP’s draft budget recommendations for the 2018-19 tax year.

People paying higher and additional rates of income tax will pay an extra penny in the pound, with the rates rising to 41% and 46%, respectively.

The basic rate of tax has been frozen at 20%, but a new rate of 21% has been introduced for those earning more than £24,000. People earning less than £13,850 will pay a new, lower, rate of 19%.

There’s also good news for people stepping onto the property ladder, with new tax breaks that will absolve 80% of first-time buyers in Scotland of Land and Buildings Transaction Tax (LBTT, the Scottish stamp duty system) altogether.

These changes aren’t set in stone yet, and need to be approved in the coming weeks by the Scottish parliament. If they do go ahead, most will be introduced in April 2018.

Scottish Budget: the key figures

In the video below Harry Rose, editor of Which? Money magazine, discusses the key reforms announced in the Scottish Budget.


Scottish income tax rates

If the changes go ahead, the Scottish income tax bands will be as follows from April 2018:

Income Tax rate
£0- £11,850 0%
£11,850 – £13,850 19%
£13,851 – £24,000 20%
£24,001 – £44,273 21%
£44,274-£150,000 41%
£150,000+ 46%

The introduction of the new 19% band means that anyone earning less than £33,000 will pay the same or less tax than they do now, despite most rates rising by a penny.

Even though many basic-rate taxpayers will start paying a new higher rate, the introduction of the new 19% ‘starter rate’, on earnings between £11,850 and £13,850, means the 55% of Scots who earn less £26,000 will pay less tax than they would in the rest of the UK.

Stamp duty (LBTT) cut for first-time buyers

New stamp duty relief will mean first time buyers don’t need to pay Land and Building Transaction Tax (LBTT) on properties worth up to £175,000, meaning 80% of first-time buyers in Scotland will pay nothing.

The relief will also apply to people buying more expensive properties.

These changes, if approved, will come into effect in April 2018.

How much tax will I pay on a Scottish property?

LBTT is currently payable on properties of £145,000 and above. Use our calculator to work out how much LBTT you’ll need to pay on your main home, second property or buy-to-let investment:

Pay rises for public sector workers

The Scottish government plans to scrap the 1% pay rise cap for public sector workers, guaranteeing minimum pay rises of 3% for those earning £30,000 or less. Pay will rise by 2% for those earning more, though pay increases will be limited to £1,600 for those earning £80,000 or more.

Investment in high-speed broadband

Proposals to invest in high-speed broadband were laid out, including a £600m investment package that will ensure 95% of premises have a fibre broadband connection by the end of this year, and in every home and business by 2021.

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