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Swinney’s Scottish Christmas Budget: a round-up

4 min read

Andy Bolden, Financial Planning Director21 Dec 2022

In his foreword to the Scottish Budget, Scottish Deputy First Minister & Interim Finance Minister, John Swinney outlined how higher earners in Scotland would be required to contribute still higher amounts in tax than the rest of the UK, whilst stating that the majority of the population would remain with a lower overall tax burden than counterparts south of the border.

This additional contribution will still start at the frozen Scottish Higher Rate Income Tax threshold of £43,663 (some £6,607 less than in the South), and will now be at a rate of 42% (compared to 40%). The 2% differential, when combined with the lower threshold, means that anyone earning between £43,663 and £50,270 will now be paying up to £1,552 extra in income tax than friends, family or colleagues in England. Whilst there is broadly an approval amongst the highest Scottish earners to carry their share of public sector costs & social investment, these income levels can also apply to senior teachers, police constables, nurses and train drivers; more so when you factor in likely upcoming pay settlements.

Like the rest of the UK, the Scottish economy needs to recover from BREXIT and COVID following each other in quick succession. Would these further tax changes help or hinder spending on goods and services in that part of the UK already forecast to recover more slowly than the UK as a whole?

For highest rate taxpayers, there was no surprise that Scotland follows the rest of the UK in dropping the top-rate threshold to £125,140, but there was also a further 1% increase in the tax rate to 47p in the pound.

Actually, there were very few surprises at all from the Deputy First Minister’s speech, given that much of the content appeared on the BBC website in advance of him standing up at Holyrood. This led to the unprecedented spectacle of the Budget session being suspended by the Presiding Officer as soon as it had started, for around 45 minutes, whilst an investigation was launched into how the ‘leak’ had occurred.

Once the speech itself commenced, however, there were a number of other points of note:

This time last year, a review of the workings of Lands and Building Transaction Tax (LBTT) and the Additional Dwelling Supplement (ADS) for Scotland was announced. A rise in the ADS from 4% to 6% was announced by Mr Swinney in his speech, with the unusual move of having it take effect immediately on 16^th ADS is now double the 3% rate applied in England, which may cause a rethink for some investors looking to diversify or increase property investment.
Overall, it was claimed that the tax increases announced would raise over £550m of extra funding for the NHS in Scotland, although these figures have already been questioned by the Institute for Fiscal Studies.
As floated last year, local councils will have an unlimited ability to raise Council Tax rates for 2023/24. With around 70% of local government spending accounted for by salaries (ahead of pay increases), the Convention of Scottish Local Authorities (COSLA) expressed their disappointment at the additional £71m committed to local government in the Budget (on top of existing announcements), so residents will be waiting for next year’s Council Tax bills in the New Year, and how this might affect local services.
Most Scottish social security benefits will go up by 10.1% in line with inflation.
A further £72m was committed to long delayed & over-budget ferry building projects.
In an attempt to attract passengers back to the publicly owned ScotRail, where usage is still well below pre-pandemic levels, there will be a six month trial of removing peak-time fares, at a cost to the public finances of £15m.
£20m will be diverted from planned spending on preparation for IndyRef 2, into support for fuel insecurity for those in social housing.

Taken alongside the announcements from the UK Budget last month, there is a significant shift in the potential tax burden on middle and higher earners in Scotland and those with personal and business investments. Anyone wishing to discuss the impact of these recent announcements on their personal planning and financial objectives should get in touch with their 7IM contact or email talktous@7im.co.uk

Please note that this article is intended for educational purposes only and should not be taken as investment advice. Tax rules are subject to change and taxation will vary depending on individual circumstances.