Chartered Institute of Taxation comment on Welsh Budget tax plans

The Chartered Institute of Taxation (CIOT) has commented on the tax proposals contained in the draft Welsh Budget for 2022/23 published today (20 December 2021)¹.

These comments relate to the news that the Welsh Rate of Income Tax (WRIT) is to be kept at 10p and the publication of a Welsh Government consultation on Land Transaction Tax (LTT) and second homes.

At the foot of this press release is a table comparing the likely tax and National Insurance liabilities of Welsh taxpayers in 2022/23, compared with the current 2021/22 tax year².

Lakshmi Narain, chair of the CIOT’s Welsh Technical Committee, said:

Income tax

“Although the Welsh Rate of Income Tax will remain at 10p, most Welsh taxpayers on a given salary will see their take home pay fall because of the UK Government’s decision to increase National Insurance by 1.25 percentage points from next April.

“This change will also impact people who do not earn enough to pay Welsh income tax because the level of income where National Insurance starts to be charged in 2022-23 is expected to be set at £190 per week, or £9,880 per annum, below the annual tax-free personal income tax allowance of £12,570.

“Unlike Wales, Scotland has the power to change the bands of income tax, and has used that power to depart from the rest of the UK on more than one occasion, both to raise more money and to make the tax system avowedly more progressive.

“This has saved Scots earning less than £27,850 per year up to £21.62 in tax, but that is dwarfed by the additional National Insurance just announced by the UK Government.”

On the publication of a consultation on a proposed local variation to land transaction tax (LTT) rates for second homes, short term holiday lets and other additional residential properties, Lakshmi Narain added:

“Consulting on reforms to LTT aimed at tackling the proliferation of second homes in some areas will be welcome, but tax is only one of the policy levers available to Ministers to address the changes that have taken place in the housing market over the last 50 years and needs to be considered alongside wider policy choices.

“This consultation will need to ensure that any changes proposed address the challenges in the housing market and protect the LTT revenues that generate money for public services.

“Consulting on changes to an existing tax may provide Ministers with an easier route to enact change as the process for introducing new taxes in Wales has been fraught with difficulty.

“Recent experiences with plans to introduce a Vacant Land Tax have highlighted these challenges and it is hard to dispute Welsh Ministers’ claims that the process for devolving new tax powers to Wales is not working and in need of reform”³.