August 08 2022 | Simon Miller
August highlight reel: Pensions Awareness Week
Every month I take the team at nudge through a concept related to financial planning and wellbeing and this month it was pensions.
Whilst Westminster was in turmoil yesterday, in Holyrood, Scottish Finance Secretary Derek Mackay laid out his plans for tax and spending for the year ahead in his Scottish Budget 2018 speech. What does this mean for your people resident in Scotland?
Scottish residents will be able to earn more at lower rates of income tax.
The threshold between the starter rate (19%) and basic rate (20%) is currently £13,850. This will increase to £14,549. And the threshold between the basic rate and intermediate rate (21%) is currently £24,000. That will rise to £24,944.
The next threshold between the intermediate and higher rate (41%) is £43,430. This will remain the same, as will the threshold between the higher rate and top rate (46%) of £150,000.
With the higher rate threshold rising from £46,350 to £50,000 in the UK next April, but frozen in Scotland, the divergence between the two income tax regimes continues to grow, making the importance of personalised Financial Education a must.
Income Tax Rates for Scottish Residents
Subject to approval by parliament.
*Personal Allowance is reduced by £1 for every £2 earned over £100,000.
The Personal Allowance (PA) – the amount you can earn before you start paying any income tax at all – will also rise. Currently, it is £11,850. This will go up to £12,500. The PA will remain at this new amount the year after too, and then from April 2021, it will rise with inflation each year.
(The PA is set by the UK Government, whereas the rates and thresholds of income tax are set by the Scottish Government.)
These changes are expected to take effect from April 2019 (that’s the start of the new tax year) if approved by the Scottish parliament early in the new year.
Buyers of a property in addition to their home, for example, a second home, holiday home or buy-to-let property investment, must pay what’s known as an Additional Dwelling Supplement (ADS) when it’s worth more than £40,000. The current ADS rate of 3% is on top of the Land and Building Transaction Tax (LBTT) due on a property.
The ADS rate will rise to 4% from 25 January 2019. It will not apply if a contract for a property transaction has already been entered into before 12 December when the new rate was announced, however.
What Happens Next?
As the Scottish National Party (SNP) is a minority administration, Mr Mackay will need the support of other parties to get his Scottish Budget 2018 through the final vote, which should take place in February 2019.