Higher earners in Scotland could pay over £1,000 more in extra tax, as the Scottish Finance Secretary copies Rachel Reeves’ Autumn Budget playbook.
Finance Secretary Shona Robison opted to raise the tax threshold for both basic and intermediate tax payers, but left the higher rate unchanged, which is likely to drag more earners into higher tax brackets.
This follows the Treasury’s decision to freeze income tax thresholds until 2031, a move which is expected to pull thousands of UK workers into higher tax bands, and has been dubbed a ‘stealth tax’.
The basic rate in Scotland of 20 per cent is paid on income between £15,398 and £27,941, while the intermediate rate of 21 per cent is paid on income between £27,492 and £43,662.
If the Budget is passed, the Basic and Intermediate rate thresholds will increase by 7.4% to £16,537 and £29,526 respectively in the next financial year.
The higher, advanced and top rate thresholds will remain at £43,662, £75,000 and £125,140 respectively.
Neil Winstanley, chartered financial planner at Quilter Cheviot, said: “The decision to increase the basic and intermediate rate thresholds will be welcomed by lower and middle-income earners and allows the Scottish Government to continue to use its message that many people pay less tax than they would elsewhere in the UK.
“It is also a politically easier move than raising the higher-rate threshold, particularly in the run-up to an election.”
Not the broadest shoulders
But Winstanley argued the threshold decision does little to address the growing number of public sector workers, including nurses and teachers, who are being pulled into the higher rate tax bracket.
He said: These are not the ‘broadest shoulders’ traditionally associated with higher-rate tax, yet fiscal drag continues to push more ordinary earners into this bracket.”
John O’Connell, chief executive of the Taxpayers’ Alliance argued that while changes to thresholds are welcome, Holyrood is “hammering Scots with new taxes”, taking “a leaf out of Westminster’s playbook”.
Higher rate taxpayer blues
The frozen threshold for higher rate taxpayers has caused Scotland to lag behind the rest of the UK by roughly £7,000.
According to Quilter, for someone earning £50,000, the difference equates to roughly £1,500 a year in extra tax, risking undermining Scotland’s competitiveness for skilled workers over time.
Robison also confirmed SNP ministers will introduce a mansion tax, similair to Westminster, introducing new higher council tax bands for homes worth over £1m.
Robison said: “To deliver even more for those with the least, we’ll ask those with the most, the very wealthiest in our land, to contribute that little bit more.”