There will be four Acts relevant to these differential Scottish taxes: the enabling legislation for the new taxes is the Scotland Act 2012 (a UK Act itself; the others being Acts of the Scottish Parliament.
- The Scotland Act 2012 sets out in Part 3 all three taxes, including the scope of the Scottish Rate of Income Tax that will apply from 6 April 2016.
- Once enacted the Revenue Scotland and Tax Powers Act (the Bill is currently progressing through the Scottish Parliament) will set the framework for Revenue Scotland and be the equivalent of TMA.
- The Land and Buildings Transaction Tax (Scotland) Act 2013 imposes the replacement for SDLT with effect from 6 April 2015.
- The Landfill Tax (Scotland) Act 2014 imposes a tax to replace landfill tax with effect from April 2015.
This will be a small organisation. It has sub-contracted collection of LBTT to the Registrars of Scotland, the collection of landfill tax to the Scottish Environment Protection Agency and the Scottish Variable Rate to HMRC.
Land and Buildings Transaction Tax (LBTT)
The main features of LBTT are that it will charge the tax on a slice not a slab basis and there will be fewer and more restricted reliefs as compared with those in SDLT. However the rates and the thresholds have yet to be announced. This charging structure is designed to remove the distortions in house prices associated with bunching of sales around the current thresholds of SDLT. An illustrative rate structure published by the Scottish Government was:
up to 125k nil
between £125k and 250k 2
above £250k 9.5
With this rate structure all purchases under £325k would incur a lower amount of tax than under SDLT (some dramatically less – eg a purchase at £130k will incur LBTT of £100 as compared with £1,300 SDLT) but the duty on the most expensive properties will be considerably higher. Note that the above rate structure was given by way of an illustration of a possible structure – the rates and bands may well be very different, but the principle of the slice structure is set. A land transaction will be notifiable to Revenue Scotland, unless the transaction is exempt or if the chargeable consideration is less than £40,000.
Further key information about LBTT is available on the Scottish government’s website.
Scottish landfill tax (SLFT)
This will be very similar to landfill tax. The rate of tax will be no lower than the rate in the rest of the UK. It may be higher. The Act leaves much of the detail to be set by regulation. One relief that may be introduced is an exemption for certain recycled waste, for example for road building/repair.
Scottish rate of income tax (SRIT)
This will be imposed on Scottish taxpayers, being individuals whose sole or main place of residence is located in Scotland. The rate paid by Scottish taxpayers will be calculated by reducing the basic, higher and additional rates of Income Tax by 10 pence in the pound and adding a new Scottish rate set by the Scottish Parliament. Thus if the SRIT is 10%, there will be no change from the current rates.
This tax will be imposed on income from employment, self employment, rental income and receipts from some trusts. It will not apply to savings or dividend income, income within trusts, the construction industry scheme deductions or, the remittance basis charge. The Scotland Act provides for further subsections to be inserted into ITA 2007 s6 to give legislative effect to this. Employers will have to collect Scottish rate income tax in accordance with PAYE codes (HMRC will advise employers of their Scottish taxpayers by including a “S” in the tax code) and identify the amount of Scottish tax within their PAYE/NIC remittances (this is a retrograde step as regards burdens on businesses – some years ago HMRC dropped the requirement that employers separately identify the amount of PAYE & NIC in their remittances).
Income tax relief for pension contributions will be given at Scottish rates.