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The Scotland Act 2012 – which received Royal Assent on 1 May 2012 – amends the Scotland Act 1998. As a result, the Scottish Parliament will have powers to set taxes on land transactions and on disposals to landfill. This will take effect from April 2015, from when Scotland will for the first time be able to borrow money for capital schemes. 

The UK stamp duty land tax and landfill tax will cease to apply to Scotland. This will be based on Scots law and will remove the current difficulties faced with a UK-wide tax applying to Scottish property law.

Then, from April 2016, the Scottish Parliament will be asked to set a Scottish rate of income tax which, unlike the stamp duty and landfill tax, will interact with UK income tax.

Revenue Scotland will be set up later this year and will be given a formal basis by 2015. A consultation document has been published and will run for three months. Comments on land and buildings transaction tax should be sent to lbtt@scotland.gsi.uk.

Let’s take a closer look at what these mean for Scottish taxpayers.

What is a Scottish taxpayer?

• In order for an individual to be a Scottish taxpayer, they must be UK resident. It is not possible for someone who is not UK resident to be a Scottish taxpayer. 
• An individual who meets the definition of a Scottish taxpayer will be a Scottish taxpayer for the whole year.
  MSPs, MPs representing a constituency in Scotland and MEPs representing Scotland will automatically be treated as Scottish taxpayers
  if an individual has one place of residence and this is in Scotland, they are a Scottish taxpayer
  individuals who have more than one place of residence in the UK must determine which of these has been their main residence for the longest period in a tax year; if this is Scotland, they are a Scottish taxpayer
• individuals who cannot identify a main place of residence must count the days they spend in Scotland and elsewhere in the UK; if more are spent in Scotland, they will be a Scottish taxpayer.

ACCA will provide guidance prior to the introduction of this tax. 

Scottish rate of income tax
The Scottish rate of income tax will be charged on the non-savings income of Scottish taxpayers. The rate will be calculated by reducing the basic, higher and additional rates of income tax levied by the UK Parliament by 10% and adding a new rate set by the Scottish Parliament (the Scottish rate). The resulting rates will be referred to as the Scottish main rates.

For example: if the UK rates remain 20% (basic), 40% (higher) and 50%, and the Scottish rate was 11%, the Scottish main rates would be 21%, 41% and 51%. On the other hand, if the Scottish rate were 9%, the Scottish main rates would be: 19%, 39% and 49%. 

The Scottish rate of income tax replaces the Scottish Variable Rate (SVR), which was introduced by the Scotland Act 1998. As it is not a discrete tax, it remains covered by existing UK double tax agreements.

The non-savings income of a Scottish taxpayer will generally be liable to the Scottish rate of income tax; savings and dividend income of the Scottish taxpayer will still be taxed at the appropriate UK rate.

There are exceptions to these rules, which we shall deal with via our business guides (see above).

Consultation on the above is expected to take place in spring 2013.

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