Scottish response to UK Autumn Statement

The Chartered Institute of Taxation (CIOT) has issued the following comments in Scotland following the Chancellor’s Autumn Statement today (17 November).

These comments relate to the continued freezing of the UK basic and higher rate thresholds and tax-free personal allowance, the reduction in the UK Additional rate threshold to £125,140, and the reduction in the dividend allowance and capital gains tax exemption to £500 and £3,000 respectively by 2024, both of which will apply in Scotland as reserved taxes.

Sean Cockburn, chair of the CIOT’s Scottish Technical Committee, said:

On the freezing of tax rates/thresholds:

“With the exception of the freezing of the tax-free personal allowance, these changes will not apply to the Scottish income tax regime¹. For Scottish taxpayers with income from a job, self-employment, pension or rental income, they will need to wait until December, when the Scottish Government publishes its own income tax plans.

“When UK threshold freezes were first announced in the 2021 Spring Budget, the Scottish Government moved to provide some protection for lower earners by making modest changes to the Scottish basic and intermediate tax thresholds. This had the effect of ensuring that the amount of income taxed only at the starter and basic rate of Scottish income tax, rather than higher rates, increased in line with inflation².

“However, given the high levels of inflation that we have now, it is hard to see how such a policy could be replicated in the coming tax year, as inflation linked threshold changes would be much more expensive.

“So, if providing some protection for lower earners is under consideration, it may not be enough to protect those on lower incomes from paying more in tax as a result of inflation.”

On the lowering of the UK Additional rate threshold to £125,140, Sean Cockburn added:

“This change will not apply in Scotland where ‘Top rate’ taxpayers, as they are known, pay a higher rate of tax – 46p v 45p.

“Even in the absence of a Scottish response next month, those with earnings above £125,140 and under £150,000 would still pay up to £1,425.80 more than someone earning the same salary south of the border as a result of tax devolution.

“This is less than the £2,669 difference that currently exists but is unlikely to sit well with the Scottish Government’s progressive approach to taxation, making it likely we will see some sort of reaction in December.”

Finally, on the changes to the Dividend Allowance and the Capital Gains tax Annual Exempt Amount, Cockburn said:

“The reduction in the Dividend Allowance announced by the Chancellor, together with the higher rates that have been in place since this April, may make it less attractive for small business owners in Scotland to consider incorporating their business in order to avoid paying higher rates of Scottish income tax.

“The other key change in the UK Budget that will affect Scottish taxpayers is the reduction in the Capital Gains Tax Annual Exemption.

“Both these changes will also make the system more complicated. More people will be required to report gains and pay Capital Gains Tax. Scottish taxpayers with capital gains and sources of income taxable at both Scottish and UK rates face multiple calculations and a need to ensure they are complying with the correct tax regime”.