Key Takeaways:
- The tax systems in Scotland and England have significant differences, particularly in income tax, stamp duty, and council tax.
- The differences in tax rates and thresholds can result in substantial variations in tax bills, with some individuals paying up to £24,000 more depending on which side of the border they live on.
- Scotland’s land tax, known as Land and Buildings Transaction Tax (LBTT), replaced Stamp Duty Land Tax (SDLT) in 2015 and has different rates and thresholds.
- Income tax in Scotland can be higher than in the rest of the UK, with more threshold bands and a higher tax rate for higher earners.
- Council tax in Scotland may become more expensive for second-home owners, with councils having the power to levy unlimited increases.
Introduction to Tax Differences
Scotland and England have a long history of disagreements, and tax is one of the most contentious issues. The tax systems in the two countries have significant differences, particularly in income tax, stamp duty, and council tax. These differences can result in substantial variations in tax bills, with some individuals paying up to £24,000 more depending on which side of the border they live on. The Institute of Chartered Accountants of Scotland (Icas) has highlighted the need for greater public awareness and understanding of the differences in tax systems between Scotland and the rest of the UK.
Council Tax in Scotland
In Scotland, all households pay council tax unless they are exempt. The country has the same system as the rest of the UK, with councils setting their own rates. However, Scotland has voted to allow its 32 local councils to charge second-home owners unlimited council tax, which could lead to significant increases in costs for prospective buyers. This comes after the introduction of a 100% uplift on charges for second-home owners. While no council has implemented a further charge yet, this could be one expense too far for some buyers.
Land Tax vs. Stamp Duty
The Land and Buildings Transaction Tax (LBTT) replaced Stamp Duty Land Tax (SDLT) in Scotland in 2015. The rates and thresholds for LBTT are fixed annually as part of the Scottish budget, and UK government announcements about stamp duty do not affect property purchases in Scotland. The rates for LBTT are generally more favorable for lower-priced properties but become significantly more expensive for higher-value purchases. For example, LBTT imposes a 10% rate on the portion of a property’s value above £325,000, whereas SDLT applies only a 5% rate on amounts over £250,000.
Income Tax in Scotland
Income tax in Scotland can be higher than in the rest of the UK, depending on how much an individual earns. The Scottish government sets its own income tax rates, which are paid to the Scottish government rather than HMRC. Workers in Scotland have the same personal allowance of £12,570, but the rates differ, and there are more threshold bands in Scotland. According to Icas, a Scottish taxpayer earning £50,000 pays £1,500 a year more in tax than someone earning the same in England. An employee in Scotland earning £110,000 will take home less than someone in England who earns £100,000.
State Spending and National Deficit
There is a significant difference in state spending and national deficit between Scotland and the rest of the UK. In Scotland, university tuition is free for students taking a first degree, and higher spending on health and education means that per capita public service spending is £2,700 higher in Scotland than in the rest of the UK. The Scottish government also reports that the "notional deficit" – net fiscal balance – in Scotland was 11.7% of GDP, more than double the rest of the UK.
Savings and Dividends
The same tax on savings interest and dividends is applied in Scotland as the rest of the UK, and the same capital gains tax also applies. However, the differences in income tax and land tax can still result in significant variations in tax bills for individuals and families. For example, a high earner on £100,000 will be taxed £25,428 in England and pay £4,010 national insurance contributions. If the same worker moved to Scotland, they would pay the same national insurance but £28,510 in income tax, a difference of more than £3,000 a year.
Conclusion
In conclusion, the tax systems in Scotland and England have significant differences, particularly in income tax, stamp duty, and council tax. These differences can result in substantial variations in tax bills, and individuals and families need to be aware of these differences when making decisions about where to live and work. The Institute of Chartered Accountants of Scotland has highlighted the need for greater public awareness and understanding of the differences in tax systems between Scotland and the rest of the UK, and it is essential that individuals and families seek professional advice to ensure they are making informed decisions about their tax affairs.
