Private Client Blog - Scotland’s ‘No’ Vote and the tax changes to come

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Scotland has voted to remain part of the United Kingdom, but Scots can still expect significant changes in the taxes they will pay, and the welfare benefits they will receive, as soon as next year.

There are currently three central government taxes devolved to the Scottish government – a landfill tax; a land and buildings transaction tax (to replace stamp duty land tax from April 2015); and Income Tax. Presently, the Scottish parliament can change the rate of income tax by up to 3%, but has not used this power. From April 2016, when the Scotland Act (2012) is due to become law, Holyrood will be able to vary the rate by up to 10%. These three taxes will amount to 16 per cent of all taxes raised in Scotland, and will be administered by the newly created Revenue Scotland. Scotland will also have its own general anti-avoidance rule which will be more stringent than that in the UK.

But now the three main Westminster political parties have all promised Scotland greater tax powers. The list of powers to be devolved is not yet finalised, not least because the UK will have a general election next spring. However, all three parties have agreed to further devolve income tax at least. The Conservatives and Liberal Democrats would allow Scotland to vary the income tax rates independently and also set the size of the various income tax bands, although Westminster may retain control of income tax on dividends and savings. Labour’s proposals are for less extensive changes than those proposed by the Conservatives and the Liberal Democrats. They would increase the allowed variation from 10 pence to 15 pence and also allow the Scottish Parliament to increase (but not reduce) the higher and additional band rates. However, the power to set allowances and reliefs would remain with Westminster.

In relation to Capital Gains Tax and Inheritance Tax, The Liberal Democrats also propose to devolve these to Scotland. The proposals are for Scotland-resident taxpayers to pay Scottish Capital Gains Tax rates notwithstanding the location of the capital gain, and for Scottish Inheritance Tax to be borne by everyone deemed to be domiciled in Scotland.

None of the parties is in favour of fully devolving the corporation tax regime. This is due no only to the complexity to going so, but also because of the danger of instigating tax competition.

For more information, please contact duncan.mitchell-innes@twmsolicitors.com

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