A Deep Dive into Scotland’s New Tax Threshold for High Earners

A Deep Dive into Scotland’s New Tax Threshold for High Earners

In a move that could potentially have significant ramifications for high earners in Scotland, the government has implemented a new tax threshold. Under this new threshold, individuals earning more than £75,000 will now face a tax rate of 45%. Prior to this adjustment, Scotland already had the highest tax band in the UK at 47% for individuals earning more than £125,000. Furthermore, this existing highest band is set to rise by an additional 1% to 48% in the following year. Let’s delve into the implications of these changes and the overall impact they may have on Scotland’s financial landscape.

With the implementation of the new tax threshold, Scotland now boasts six income tax bands, while the rest of the UK only has three. This discrepancy means that individuals residing in Scotland who earn more than £100,000 will be faced with an additional tax burden of £3,346 compared to their counterparts elsewhere in the country. Additionally, any Scottish workers earning more than £28,850 will now face higher taxes compared to those in other parts of Britain. These changes were announced by Shona Robison, Deputy First Minister and Finance Secretary, during her presentation of the Scottish budget at Holyrood.

As part of the new tax threshold implementation, the rates for the starter, basic, intermediate, and higher income tax bands will remain frozen at 19%, 20%, 21%, and 42% respectively. Furthermore, the income level at which the basic and intermediate bands come into effect has been increased to account for inflation. These measures have been designed to address a significant deficit of £1.5 billion in Scotland’s finances. Unfortunately, experts from the Fraser of Allander Institute (FAI) have predicted that the new tax band will only generate around £60 million for additional spending. In contrast, the Scottish Fiscal Commission estimates that overall income tax will raise £18.8 billion in 2024-25.

Apart from the adjustments to income tax thresholds, the Scottish government made several other significant announcements in its budget:

Council Tax Freeze

The government plans to fully fund its proposed council tax freeze, delivering an additional investment of over £140 million for local services. When combined with other support provided to local government, this will increase overall funding by 6%, resulting in a new record-high amount of over £14 billion.

School Meal Debt Cancellation

To alleviate the burden on families struggling to make ends meet, the government has allocated £1.5 million to wipe out school meal debt for pupils across Scotland.

Scottish Child Payment

Ministers have earmarked £6.3 billion for social security benefits, including a 6.7% increase in Scottish benefits from September 2023 in line with the Consumer Price Index (CPI) rate of inflation. The Scottish Child Payment will also see an incremental increase from £25 to £26.70 starting in April.

NHS Funding

Addressing concerns about NHS funding, the Scottish government pledged a £550 million rise (4.3%) for NHS boards, totaling £13.2 billion. This investment aims to advance the delivery of services and improve waiting times.

Police and Fire Services

To support frontline services and key priorities like body-worn cameras, Police Scotland will receive over £1.5 billion in funding. Additionally, the Scottish Fire and Rescue Service will benefit from nearly £400 million in financial support.

Business Rates, Housing, and Transport

The budget also includes a freeze on business rates for properties valued below £51,000, while hospitality businesses in Scotland’s islands will receive 100% relief. Furthermore, the government plans to invest almost £2.5 billion in public transport and allocate £550 million for affordable housing supply.

During her budget announcement, Shona Robison emphasized that the Scottish government is operating within the “upper limit of mitigation” afforded by the existing devolution arrangements. While acknowledging the constraints and challenges, she stated that the Scottish government will continue to make the best use of its available powers. However, Robison reiterated that these powers are not a substitute for independence, insisting that Scotland must forge a unique path given the contrasting choices evident in the UK government’s autumn statement.

The Scottish Conservatives’ finance and local government spokesperson, Liz Smith, condemned the budget as “dismal and damaging,” particularly for Scottish taxpayers and businesses. Smith highlighted that under the SNP, Scotland already faced the highest tax rates in the UK, and the recent income tax rises further exacerbate the burden on hard-working Scots. Moreover, these changes may have serious implications for Scotland’s ability to attract and retain skilled workers, including much-needed medical professionals for an already overburdened NHS.

Council Tax Freeze Criticism

Lilian Macer, Scottish Secretary at Unison, expressed concern about the negative consequences of the council tax freeze on local services. Macer emphasized the importance of investing in schools and the NHS, suggesting that a council tax freeze impedes such crucial investments. While she acknowledged the increased funding for the NHS, she called for clarity on how these funds will specifically address staffing challenges within the industry.

Missed Commitments

Action for Children, a charity organization, expressed disappointment that the Scottish Child Payment, initially promised to increase to £30, fell short of expectations. They stressed the importance of this payment in supporting families and expressed hope for future increases.

Scotland’s new tax threshold for high earners represents a significant shift in the country’s income tax landscape. The increased tax burden on individuals earning more than £75,000 will have implications for Scotland’s economic competitiveness and its ability to attract and retain skilled professionals. While the budget includes funding commitments for various sectors, there are concerns about the impact on local services and missed opportunities for increased support. As the implementation of these changes unfolds, it will be important to monitor their effects on both individuals and public services within Scotland.


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