Scottish Budget 2020: The Key Changes

Mazars' tax experts in Scotland analyse the fiscal proposals from the Scottish Government's 2020 budget.

Scottish Budget 2020

The full consequences of Brexit will not be known for some time but it is already having a significant impact on the UK’s fiscal timetable.  Whilst the Scottish Government would normally know the UK Budget proposals before announcing their own, Chancellor Sajid Javid’s decision to hold the UK Budget on 11 March resulted in former Finance Secretary, Derek Mackay, scheduling the Scottish Budget ahead of the UK Budget. 

When delivering the Scottish Budget the Minister for Public Finance, Kate Forbes, noted the risks associated with announcing the 2020/21 spending plans without final funding figures from the UK Government and warned that any significant variations from the Scottish Government’s estimates would result in the “unprecedented” step of making revisions to the Scottish Budget.

Given the Scottish Government’s limited ability to alter its tax raising powers, there were only ever likely to be changes to income and land transfer taxes but even these were relatively minor.

Scottish Income Tax

The Scottish Government has had the power to set the income tax rates and bands which apply to non-savings income such as salary, pensions and rental income since 2017.  Ms Forbes announced there will be no change to the five band format or the rates of tax applicable to Scottish taxpayers.  She did, however, announce the basic and intermediate thresholds would increase in line with inflation whilst the higher and top rate threshold will be frozen:

Scottish Income Tax – 2020/21

Band

Taxable income

Scottish tax rate

Personal Allowance*

Up to £12,500

0%

Starter rate

£12,501 to £14,585

19%

Basic rate

£14,586 to £25,158

20%

Intermediate rate

£25,159 to £43,430

21%

Higher rate

£43,431 to £150,000

41%

Top rate

over £150,000

46%

* Personal Allowance set by UK Government. 

Assuming that no changes are made to the personal allowance then the maximum benefit of these increases from 2019/20 will be a £2.50 reduction in income tax arising to Scottish taxpayers earning above £25,158.

With no changes announced to the intermediate and higher rate thresholds, Scottish taxpayers earning more than around £27,000 will continue to pay more income tax than their counterparts in the rest of the UK with the divergence increasing as earnings increase.

Land and Buildings Transaction Tax (LBTT)

There were no announcements in respect of the acquisition of property in Scotland but Ms Forbes announced the immediate introduction of a 2% band for new non-residential leases where the net present value of the rent exceeds £2m:

Land and Buildings Transaction Tax – 2020/21

Residential conveyances

Nonresidential conveyances

Nonresidential leases

Purchase price

LBTT

rate

Purchase price

LBTT

rate

Net present value of

rent payable

LBTT

rate

Up to £145,000

0%

Up to £150,000

0%

Up to £150,000

0%

£145,001 to £250,000*

2%

£150,001 to £250,000

1%

£150,001 to £2m

1%

£250,001 to £325,000

5%

Over £250,000

5%

Over £2m**

2%**

£325,001 to £750,000

10%

Over £750,000

12%

* First‑time buyers are entitled to LBTT relief up to £175,000.  ** From 7 February 2020.

The introduction of a 2% LBTT charge on new non-residential leases echoes the SDLT charge introduced by the UK Government in March 2016.  The Scottish Government has now followed suit but set the threshold at a much lower level – the charge will apply where the net present value of the rent payable exceeds £2m whilst the SDLT charge applies where the same exceeds £5m.

Business Rates

Earlier in the week, MSPs voted against an amendment to the Non-Domestics Rates Bill to give local councils in Scotland the power to set their own business rates and instead this power will remain with the Scottish Government.

As part of the Bill, private schools in Scotland will have to pay full business rates from 1 September 2020.  Currently they benefit from 20% relief on their rates bills.

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