Tired of ever-increasing taxes? We’d like to hear from Scots considering moving south to avoid the SNP’s tax grab: money@telegraph.co.uk
High earners in Scotland will have to pay hundreds of pounds more in income tax next year after the Humza Yousaf government introduced a new 45p rate as part of a triple increase.
SNP finance secretary Shona Robison used the Scottish Budget to announce a new “advanced” tax rate for high earners, which will apply on incomes between £75,000 and £125,140 from next April.
This means Scotland will have six income tax bands, double the three south of the border, leading to warnings of a brain drain of top talent to England.
The Chartered Institute of Taxation (CIOT) has warned that around 114,000 Scots in this range will pay £1,871.13 more in income tax next year, and £5,231.81 more than a person on the same salary in other parts of the UK.
Those with incomes between £100,000 and £125,140 will pay an effective rate of 67.5 per cent on this bracket due to the withdrawal of tax-free personal allowance. This rate rises to 69.5 percent when National Insurance is taken into account.
Ms Robison also increased the top tax rate in Scotland by 1p to 48p, reaching 40,000 workers with incomes above £125,140. This is 3p in the pound above the top rate south of the border.
In its biggest tax grab, it imposed £307 million in hidden taxes by freezing the salary threshold at £43,663 for a 42p higher rate rather than increasing it with inflation.
The move will also affect middle-income workers such as teachers, police officers and NHS staff through “financial drag”. This means more Scots will be dragged into paying higher rates when they receive their annual pay rise. Those currently earning more than £43,663 will also see their tax bills increase.
The increases also mean the cross-border tax gap between Scotland and England has widened further; Someone earning £100,000 pays £3,346 more than someone living south of the border. Anyone earning £28,867 in Scotland will pay more.
The Scottish Finance Commission, which provides official forecasts to SNP ministers, estimates workers will pay an extra £1.5bn in income tax next year compared to tax payable in the rest of the UK.
But the new tax band is just £74 million and a 1p increase in the top rate would bring in £8 million. Expected income from the two increases was reduced by £118 million, thanks to a change in behavior among high earners looking to avoid them.
These may include being denied promotions, shorter working hours or paying dividends that are taxed at a lower rate by the UK Government.
The changes will negate the impact of the Chancellor’s decision to cut National Insurance from January 6 for thousands of Scots. These people were expected to benefit an average of £340 when the headline rate fell from 12 per cent to 10 per cent. United Kingdom.
On Monday, Rishi Sunak warned First Minister Mr Yousaf that rising income tax was again undermining the UK Government’s efforts to help families and businesses out of the cost of living crisis, arguing that “we should be cutting taxes rather than increasing them”.
But Ms Robison told MSPs the Chancellor’s Autumn Statement “tax cuts were prioritized at the expense of public services”, adding: “This cannot be right.”
Announcing the income tax changes, he said: “We are proud that Scotland has the most progressive income tax system in the UK, protecting those who earn less and asking those who earn more to contribute more. This allows us to offer a more comprehensive set of services than the rest of the UK.
“These targeted tax decisions are expected to increase our income tax revenue by £389 million and enable us to continue to develop our progressive approach to taxation, while carefully balancing the needs of individuals, businesses and the wider economy.”
But CBI Scotland director Tracy Black said: “The decision to introduce an enhanced tax rate will harm Scotland’s ability to attract highly skilled workers and our national and international competitiveness.”
Bruce Cartwright, chief executive of the Institute of Chartered Accountants in Scotland, said the Scottish Budget was “both shortsighted and fails to deliver sustainable economic growth”.
He added: “Imposing further tax increases on high earners is not a sustainable long-term solution and will have a negative impact on Scotland’s positioning as an attractive place to live and do business.
“Scotland already has the top five tax bands in the UK and these changes will impact the growth of the Scottish economy, covering just 5.4 per cent of the budget deficit.”
CIOT has warned that the cross-border tax gap could widen further if the Chancellor announces income tax cuts across the rest of the UK in the expected March Budget.
Sean Cockburn, chairman of the Scottish technical committee, said: “The Scottish Government’s income tax plans are widening the gap between high earners in Scotland and the rest of the UK, and we cannot rule out the possibility that this gap could widen further in the spring.
“The sixth income tax band will inevitably mean further difficulties for affected taxpayers. This may include difficulties knowing when different income tax rates apply and how to ensure the appropriate amount of tax relief is applied to things such as Gift Aid and pension contributions.”
‘Chaotic budget of an incompetent government’
The personal allowance of £12,570 (the amount workers can earn before they start paying income tax) is the same across the UK. In Scotland next year a starting rate of 19 per cent will be charged on incomes up to £14,876, at which point the basic rate of 20 per cent will come into play for salaries up to £26,561.
Ms Robison said she had increased both thresholds in line with inflation compared to this year, but an economist at the Fraser of Allander Institute said they had increased by only one per cent and 3.4 per cent respectively.
Joao Sousa, the institute’s director, said this would mean “financial distress is still pushing people to pay more taxes than they did before.”
An interim rate of 21 per cent will be charged on incomes up to £43,662, before the higher rate of 42 per cent applies to salaries between £43,663 and £125,140. By comparison, the higher rate in the rest of the UK is 40 per cent and the salary is £50,271. The new 45p advance rate and the top 48p rate will apply above this in Scotland.
Ms Robison said she would provide £140 million to local authorities to freeze council taxes; That’s the same amount they would get by increasing the tax by five percent.
Michael Marra, Scottish Labour’s finance spokesman, said: “This is a chaotic budget from an incompetent government that will leave ordinary Scots paying more and getting less in return. “This government’s failure for 16 years to focus on country priorities rather than party means they are now asking taxpayers to bail them out.”