Tax Focus – September 2014

Author:Ms Tina Riches, Matt Watts and Colin Aylott
Profession:Smith & Williamson


Article by Tina Riches

Following the 'no' vote in Scotland, there is more clarity on the tax position, at least in the short term. Further powers for Scotland are being discussed so this may change. Under the Scotland Act, these changes will start to have an impact from April 2015, with the effects of at least some of the changes being felt not just in Scotland, but also the rest of the UK, often referred to now as 'rUK'.

However, until that happens, we summarise below the changes already agreed.

Property related taxes

The first two known tax changes are property related, due to come into force in April 2015. The new land and buildings transaction tax (LBTT) will replace rUK's stamp duty land tax (SDLT) on property transactions in Scotland. Whereas SDLT is a slab tax with the whole price taxed at one rate, LBTT will be a progressive tax. Like income tax, if the taxed amount is £1 over a threshold it is only the excess that will be taxed at the next rate, not the whole value.

The exact LBTT rates are due to be announced this autumn. It will be interesting to see if the changes invigorate the property machine, rather than cause a blockage at each rate rise threshold. There are fewer reliefs than under SDLT, but others are already being looked at, such as a sub-sales relief. LBTT will be supported by the Registers of Scotland, who already compile and maintain various registers.

The other new property related tax is the new Scottish landfill tax. Also due to start in 2015, this tax will be administered by the new tax authority, Revenue Scotland, with the operational support of the Scottish Environment Protection Agency.

Scottish rate of income tax

The other tax already on the statute book, although strictly not a devolved tax, is the Scottish rate of income tax (SRIT), due to take effect from 2016 on non-savings income of Scottish residents. This replaces the current ability of the Scottish Government to vary income tax rates, which has never been used.

SRIT will need to be operated by employers, pension or annuity providers operating PAYE. It will work by taking a 10% slice off UK income tax and instead adding on the SRIT set by the Scottish Parliament, which may be at a different rate.

There will be a number of implications, not least for employers or pension providers in rUK, who will also need to know which side of the border their employees or pensioners are resident. Much of this headache...

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