Income tax rates for higher earners will increase from April 2023 under proposals announced in the Scottish Budget.
The fiscal plan for 2023-24 comes at a time when many Scottish households, like the rest of the UK, are feeling the squeeze from high inflation and widespread price rises.
To address the cost of living crisis and help more vulnerable households, the Budget also included a 10.1% increase to benefits, and a commitment to maintain the current Scottish child payment rate. But, with no limit placed on council tax rates, people could face higher bills from April.
Deputy First Minister and acting finance secretary John Swinney unveiled the plans at Holyrood today (15 December), but they won't come into force until approved by the Scottish Parliament and royal assent is received.
Here, Which? takes a closer look at the Budget announcement, and how it could affect your money.
Income tax increase for higher earners
Income tax rates for higher earners in Scotland will go up from April 2023, while the threshold for the top rate of tax will be reduced to £125,140, in line with the additional-rate tax band in place elsewhere in the UK.
Swinney has used the Scottish government's devolved powers to increase the higher rate of tax from 41p to 42p in the pound, and the top rate from 46p to 47p.
Despite these increases, Swinney said the majority of Scots will still pay less income tax than those in other UK nations.
The personal allowance and other income tax bands (starter, basic and intermediate) will remain frozen. Thresholds failing to rise in line with salaries, however, may result in a significant number of people ending up in a higher tax band.
The changes are designed to plug a black hole in the government's finances so it can spend more on key public services, particularly health and social care.
The table below shows the proposed Scottish income tax rates and thresholds for 2023-24, compared to 2022-23.
| 2022-23 | 2023-24 | |||
|---|---|---|---|---|
| Tax band | Income | Tax rate | Income | Tax rate |
| Personal allowance | £0-£12,570 | 0% | £0-£12,570 | 0% |
| Starter rate | £12,571-£14,732 | 19% | £12,571-£14,732 | 19% |
| Basic rate | £14,733-£25,688 | 20% | £14,733-£25,688 | 20% |
| Intermediate rate | £25,689-£43,662 | 21% | £25,689-£43,662 | 21% |
| Higher rate | £43,663-£150,000 | 41% | £43,663-£125,140 | 42% |
| Top rate | More than £150,000 | 46% | More than £125,140 | 47% |
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 £125,140 will pay tax on all income they earn.
- Find out more: income taxes in Scotland
No cap on council tax rises
All Scottish local authorities will receive £550m in funding next year, and there will be no limit set on council tax bill rises for 2023-24.
This means residents could see large increases to their council tax bills from April 2023 - however, Swinney urged councils to consider local needs and the impact of any potential rate increase on already stretched household budgets.
- Find out more: what is council tax?
Land and buildings transaction tax rise for second homes
Homebuyers in Scotland start paying land and buildings transaction tax (LBTT) on properties costing more than £145,000 (or £175,000 for first-time buyers). These thresholds will remain unchanged in 2023-24.
However, people buying a second home will have to pay more from 16 December, as the additional dwelling supplement increases to 6%, up from 4%. This is charged on top of standard LBTT rates.
Business rates
Following lobbying by business groups, business rates will be frozen in a bid to help support smaller firms.
Ahead of the Budget announcement, Mags Simpson, deputy director of policy at CBI Scotland, warned that business rates could spiral next April. High levels of inflation mean that the Uniform Business Rate could go up by as much as 10% if the issue was ignored in this week’s Scottish Budget.
Help for vulnerable households
The finance secretary pledged to increase benefits under the control of the Scottish parliament by the rate of September's CPI inflation, 10.1% - at a cost of £428m.
In addition, the Scottish child payment will be frozen at the rate of £25 a week for every child under 16 living in households in receipt of certain benefits. The payment was first introduced in February 2021 in a bid to tackle child poverty.
To help households struggling to pay for energy, the £20m fund earmarked for an independence referendum will go into the country's Fuel Insecurity Fund instead. The fund, which was launched in 2020-21, aims to provide practical support to social landlords’ tenants to help them to heat their homes and to manage, or reduce, their energy costs.
Boost to public services and investment in transport
There was no mention of public sector pay increases, but Swinney did announce that an extra £1bn over the course of the next financial year will go to health and social care in Scotland. The deputy first minister claims this extra funding is possible because of the proposed changes to income tax.
There's also good news for commuters, with peak train fares across Scotland’s railways scrapped for a six-month pilot. The proposal is part of the government’s commitment to reaching net zero and decarbonising transport, which also includes £60m being invested into Scotland’s charging infrastructure for electric vehicles.
What happens next?
If the Scottish government's draft Budget proposals are approved, they will come into force in April 2023.
The SNP and Scottish Green Party, which between them hold a majority of seats in the Scottish Parliament, are working together in government under the terms of the Bute House Agreement. The Budget has been developed in co-operation between the two parties, but other parties typically negotiate with the government to secure additional measures before the draft Budget is finalised.
source https://www.which.co.uk/news/article/scottish-budget-2022-what-does-it-mean-for-your-money-aP5212k2Q16l