Article by GoSimpleTax

On 15 December 2022, Deputy First Minister John Swinney MSP gave a statement to Parliament, outlining the Scottish government’s tax and spending plans for the 2023-24 tax year.

Swinney said he was making his budget statement within “the most turbulent economic and financial context most people can remember,” citing surging energy and fuel prices caused by Russia’s invasion of Ukraine as a key driver of inflation, which was running at a 40-year high and “corroding our economy”.

The UK government’s “disastrous approach to Brexit” was “adding to the turmoil”, he continued, describing former PM Liz Truss and ex-Chancellor Kwasi Kwarteng’s September mini budget decisions as “utterly catastrophic”, having driven up interest rates and “saddled the country with much higher debt”. Swinney said these were “spectacularly difficult times in which to manage public finances” (source: GOV.Scot).

Key Income Tax changes

So, what key tax changes will be introduced via the Scottish Government Budget 2023-24 and how will they impact you? Higher-earning landlords and other taxpayers will certainly be affected most.

  • Landlords and others in Scotland earning taxable income of more than £43,662 a year will have to pay more Income Tax from April 2023.
  • The higher rate of Income Tax will increase from 41p to 42p in the pound from April 2023.
  • The top rate of Income Tax will increase from 46p to 47p in the pound from April 2023.
  • The tax threshold for the top rate will also be lowered from £150,000 to £125,140, which will increase the number of top-rate Income Tax payers in Scotland.
  • The threshold for the higher rate will remain at £43,663 in Scotland – significantly lower than the £50,271 which is the case elsewhere in the UK.
  • There will be no changes to the Income Tax paid by lower earners in Scotland.

Did you know? According to the Scottish government, about half a million people in Scotland are currently in the higher rate Income Tax bracket, while an additional 33,000 pay the top rate of Income Tax.

Will you pay more or less Income Tax?

As reported by BBC News, a landlord or other taxpayer in Scotland who earns less than £27,850 a year will pay up to £21.62 less tax a year than someone living elsewhere in the UK from April 2023.

A landlord or other taxpayer living in Scotland earning taxable income of £50,000 a year will pay an extra £63.38 in Income Tax when compared to this year, but £1,552 more per year than someone on the same income living elsewhere in the UK.

From April 2023, someone in Scotland earning £150,000 will pay an additional £2,432.08 in Income Tax compared to this year – £3,857 more than someone earning the same salary who lives elsewhere in the UK.

LBTT Additional Dwelling Supplement

Also announced in the Scottish Budget for 2023-2024 was a 2% increase to the Additional Dwelling Supplement (ADS – a second home tax) from 4% to 6%, which is unwelcome news for many Scottish landlords and would-be landlords.

  • The 6% rate will apply to property transactions in Scotland entered into on or after 16 December 2022.
  • The 4% rate will still apply to transactions entered into on or before 15 December 2022. 

The Land and Buildings Transaction Tax (LBTT) replaced UK Stamp Duty Land Tax in Scotland on 1 April 2015. There will be no changes to the main residential and non-residential rates and bands in 2023-24. The ADS was introduced on 1 April 2016. It’s usually payable on the total purchase price of an additional dwelling if it’s £40,000 or more.

ADS increase reaction

The Scottish Association of Landlords (SAL) was scathing in its criticism of the 2% ADS hike. It said: “There was no prior consultation with stakeholders on this policy change and it came into effect almost immediately.

“The justification given in the Scottish Budget report is to raise £34m of additional revenue to support public services in Scotland in 2023‑24, and to support the Scottish Government’s commitment to protect opportunities for first‑time buyers.

“SAL gave evidence in parliament to a Scottish Government review of LBTT ADS in February 2022, [but] at no point did the government suggest or ask for views about increasing the rate. We would urge the Scottish Government to consider removing the ADS or at the very least reduce it to make the Scottish PRS a more attractive investment choice for landlords and stem the reduction in the volume of properties available to tenants seeking accommodation in the sector.”

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