The Scotland Bill (the “Bill”), in its present form, could result in major changes to income tax, the introduction of the concept of a ‘Scottish taxpayer’, a new land tax and an increased landfill tax.
Content of the Scotland Bill
If the Bill is enacted in its current form then the Scottish parliament will have the power to increase or reduce certain taxes including income tax and also Stamp Duty Land Tax (or the Scottish equivalent, ‘Scottish Land Tax’) and landfill tax.
Income tax changes
The effect of the Bill would be that the rate of income tax in Scotland is reduced by 10 pence in the pound. The Scottish parliament would then be responsible for adding a new Scottish tax rate on top of this. At the same time the amount of funding Scotland receives from the rest of the UK would be reduced.
The new rates of income tax would apply to Scottish taxpayers only. Scottish taxpayers are defined as individuals who are resident in the UK and who have a close connection with Scotland or individuals who do not have a close connection with any part of the UK other than Scotland and who spend more days in Scotland than anywhere else in the UK.
A ‘close connection’ is also defined in the Bill. An individual has a close connection with a part of the UK if either:
- he has only 1 place of residence in the UK and his residence is in that part of the UK and the individual lives at that place of resident for at least part of the year; or
- the following conditions are met:
- he has 2 or more places of residence in the UK; and
- for at least part of the year the individual’s main place of residence is in that part of the UK; and
- the times in the year which the individuals main place of residence is in that part of the UK are at least as much of the year when the individual’s main place of residence is in any other part of the UK; and
- the individual lives at that place of resident for at least part of the year.
If a person has more than 1 UK residence, including one in Scotland, then the number of days spent in Scotland are counted. If the number of days spent in Scotland are greater than the number of days spent in the remainder of the UK then that individual will be a Scottish taxpayer.
There is no provision in the Bill for split-year tax treatment.
The Law Society of Scotland has raised concerns that the definition of Scottish taxpayer will mean that all Scottish taxpayers will have to complete and submit annual tax returns to HMRC so that the correct tax code is applied.
Scottish Land Tax and landfill tax
Scottish Land Tax will be payable by parties acquiring land in Scotland regardless of their residence and would therefore be payable by non-Scottish companies acquiring land in Scotland. It is expected that the rate of landfill tax will be higher in Scotland than in the rest of the UK.
Progress of the Scotland Bill
The Scotland Bill is currently at the Committee stage of legislative progress in the UK parliament and in the Scottish parliament a legislative consent motion was recently passed permitting the UK parliament to pass legislation on this matter.
The Scotland Bill, if enacted in its current form, would have implications for employers who employ Scottish taxpayers and for companies who propose to purchase land in Scotland or make disposals to landfill in Scotland.
For further information or to discuss the issues raised, please contact Stephen Wright on +44 (0) 20 3051 5711