04 December 2024
If you are covering the Scottish budget and changes to the income tax bands, please see the following comment from Neil Winstanley, Edinburgh-based chartered financial planner at Quilter Cheviot:
"The Scottish Government’s decision to raise the basic and intermediate income tax thresholds by 3.5% signals a focus on easing the burden for lower and middle-income earners compared to the continued freeze of thresholds in the rest of the UK. This move, alongside a commitment to no new bands or rate increases for the remainder of the parliament, offers a degree of certainty for taxpayers at a time of economic turbulence. However, it also highlights Scotland’s increasingly distinct tax regime, where higher earners continue to shoulder a disproportionately greater burden compared to the rest of the UK.
"Regarding the continued 45% tax band for individuals earning between £75,000 and £125,140, it remains crucial for higher earners to consider their pension contribution strategies. Since pension contributions can reduce taxable income, those in the 45% bracket have a significant incentive to contribute more to their pensions. By doing so, they can lower their taxable income and benefit from the tax relief available on these contributions, effectively maximising their retirement savings while reducing their current tax liability.
"While the adjustments to thresholds ensure most Scottish taxpayers pay less income tax than their counterparts elsewhere in the UK, the wider context cannot be ignored. With revenues projected to reach £24.6 billion by 2025/26, largely driven by faster wage growth, questions persist about the long-term competitiveness of Scotland's economy. High earners may feel the pinch of policies designed to deliver additional revenue for vital public services like the NHS and poverty reduction, with the government effectively doubling down on its progressive taxation ethos.
"The announcement to scrap the two-child benefit cap by 2026 further underscores the Scottish Government’s commitment to progressive policy. While it promises relief for many struggling families, it also raises significant questions about affordability and the capacity to deliver within tight fiscal constraints. Together, these policies paint a picture of a government seeking to redefine social fairness, albeit with risks to economic balance and competitiveness. As ever, the challenge will be ensuring that such policies drive meaningful change without undermining Scotland’s broader economic ambitions."
