High-earning Scots could face 68% tax rate

While Scotland’s income taxpayers are already paying higher rates than their counterparts south of the border, high earners could soon face paying even more. A tax industry body has warned that First Minister Humza Yousaf’s potential tax rate reform could take up to 68 percent of their earnings above £100,000.

During a speech at the recent Scottish Trades Union Congress’ (STUC) conference, Mr Yousaf raised the potential to introduce a 44 percent tax rate on earnings between £75,000 and £125,140.

However, the Chartered Institute of Taxation (CIOT), warned that the new 44 percent band could see Scots facing a 68 percent charge on their earnings between £100,000 and £125,140, after taking into consideration the personal allowance and National Insurance tax rules enforced by Westminster.

Sean Cockburn, chairman of the Chartered Institute of Taxation’s Scottish technical committee, told the Times the addition of a new 44 percent band could see someone who earns around £125,000 pay £4,600 more in income tax than they would if they lived in other parts of the UK.

Currently, Scottish taxpayers in this group pay £3,360 more a year than other parts of the UK.

Mr Cockburn said: “It is easy to understand the politics, as asking those on higher incomes to pay more has been a tenet of SNP tax policy since 2017. But it is also easy to foresee potential challenges.

“The perception of an ever-increasing disparity between the taxation of higher earners in Scotland and the rest of the UK raises the possibility that those who are able to take steps to legitimately reduce their tax liabilities [will do so].”

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Although income taxpayers in wider areas of the UK earning more than £100,000 face tax rates of more than 60 percent of their earnings, Scottish counterparts pay more because of Holyrood’s slightly different tax regime.

Not including the personal allowance threshold, Scotland currently has five income tax bands ranging from 19 percent to 47 percent, compared to Westminster’s three ranging from 20 percent to 45 percent.

Scotland raised a few of its income tax rates this April in a move to ensure that “those who can, [will] contribute more” and could raise up to £129million in the 2023/24 year.

Mr Cockburn said: “For those around the margins of the tax thresholds, it could mean working a little less or paying more into their pensions, while those who can may choose to incorporate a business to pay lower rates of corporation tax set by the UK Government which apply north of the border.

“At its most profound, it might mean that someone chooses to leave Scotland, or decides against moving, a situation that might make it harder to recruit and retain staff.

“These challenges highlight the importance of ensuring that any future tax changes are accompanied by healthy debate on the tricky trade-offs on tax and spend, as well as consideration of the impact of Scottish and UK tax choices in the round.”

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