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Scottish Budget 2020: will you pay more tax from April?

Changes are planned for income tax, council tax and business rates

Some income tax thresholds in Scotland will rise with inflation next year, under proposals announced in today's Scottish Budget.

Other changes announced include the green light on 3% council tax increases, measures to increase the amount of affordable housing and additional support for children from low-income families.

Public finance minister, Kate Forbes, announced the changes today, but they will need to be approved by the Scottish Parliament and get Royal Assent before coming into force when the new tax year begins on 6 April.

The Scottish Budget was scheduled to take place in December 2019, but was pushed back due to the General Election.

Here, we explain the proposed changes in the Scottish Budget for the 2020-21 tax year and how they will affect your finances.

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Scottish income tax rates for 2020-21

The table below shows the proposed new rates of Scottish income tax for 2020-21, compared with 2019-20 rates.

In today's Budget speech, the thresholds for the starter rate, basic rate and intermediate rates were lifted in accordance with inflation. Higher and top rates were frozen.

Tax year 2019-20Tax year 2020-21
Tax bandIncomeTax rateIncomeTax rate
Personal allowance£0-£12,5000%TBC0%

Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 they earn over the threshold, meaning that anyone who earns more than £125,000 will pay tax on all income they earn.

These figures assume that the Westminster Budget maintains a £12,500 personal allowance for 2020-21 - but this won't be confirmed until 11 March.

What do the changes mean for you?

Today's Budget means that those with lower salaries can essentially earn more money in 2020-21 before having to pay the lower or intermediate rates of tax.

For instance, if you earn £25,000, the increased thresholds mean you'll only pay 20% income tax next year, whereas you would have previously been paying 21%.

According to the Budget, the threshold changes mean 56% of Scottish taxpayers will pay less income tax than if they lived elsewhere in the UK.

Council tax increases

Local authorities will be able to increase council tax levels by up to 3% in 2020-21, which will raise an estimated £135m.

This is in addition to £11.3bn funding from the Scottish Government.

While councils don't have to increase their rates by this amount - and could choose lower increases - it will depend on how much they will need to fund local services.

Affordable housing

The Budget outlined several measures with an aim to provide more affordable housing. These include:

  • Committing more than £800m to build 50,000 affordable homes over the course of the parliament.
  • Increasing investment in the Affordable Housing Supply Programme to £843m.
  • Continuing to support Help to Buy Scotland and Open Market Shared Equality schemes.
  • Supporting new £150m pilot First Home Fund, which opened in December 2019.

Find out more:affordable housing: can you buy below market value?

Introduction of the Scottish Child Payment

In keeping with the Scottish Government's aim to provide a 'fair' Budget, support for those on low incomes is key.

The new Scottish Child Payment is one way it's planning to tackle child poverty. It will be a weekly payment of £10, initially for low-income households with a child under six years old by Christmas 2020.

Once it's fully rolled out by 2022, it's estimated that this payment will help raise 30,000 children in Scotland out of poverty.

Pay rise for public sector workers

Nurses, doctors, teachers could also be in line for some extra cash, as the Budget outlined a 3% pay uplift for public sector workers who earn up to £80,000.

Business rates

The Scottish Budget asserted that it wanted to 'maintain the most generous non-domestic rates regime in the UK'.

As such, more than 95% of properties in Scotland will be subject to a lower poundage than they would face in other parts of the UK.

The proposed rates for 2020-21 are below:

Basic property rate (poundage)49.8p
Intermediate property rate (rateable values between £51,000-£95,000)51.1p (poundage + 1.3p)
Higher property rate (rateable value above £95,000)52.4p (poundage + 2.6p)

Why is the Scottish Budget before the Westminster Budget?

The Scottish Budget usually takes place after the Westminster Budget has been announced, as it includes details of what funding the Scottish Government will receive.

However, it's all change this year. Originally scheduled for 12 December 2019, the Scottish Budget was delayed so as not to clash with the General Election - which took place on the same day.

As the Westminster Budget is now not taking place until 11 March - the day that all councils in Scotland must legally have their local rates set - it was decided the Scottish Budget would have to go ahead earlier.

This means that figures used in today's Scottish Budget are estimates based on what MSP's think will be announced in the Westminster Budget and therefore may have to be changed to reflect later announcements.

What must happen for the changes to take place?

If the SNP's draft Budget proposals are approved, they will come into force from 6 April 2020.

As the SNP is a minority party, it needs the support of at least one other party to be able to pass the Budget - although each will draw up their own lists of demands before agreeing a deal.

The SNP has struck a deal with the Green party for the past three Budgets.

However, there is much less time for parliamentary scrutiny this year, with just two months between the Budget announcement and the start of the tax year; usually, there are at least five months for this process to take place.

The Public Finance minister said the SNP are open to discussion with all parties, but stressed that 'the clock is ticking'.