Scotland to be the highest taxed part of the UK
If you live and work in Scotland, then you may be worrying you will soon be living in the highest taxed part of Britain. Depending on what you earn, you would be correct; but should you worry? In our blog, we look at what effect the proposed changes to income tax will have on personal finance in Scotland.
New Income Tax Bands
On the 14th of December, the Scottish Government announced in their annual budget that they would be replacing the UK’s existing three income tax bands, with five new ones.
The first of these is to be a starter rate of 19% for all annual earnings over £11,850, but under £13,850 per annum. Then there is to be a standard rate of 20% for all earnings over £13,851, but under £24,000 per year.
Next up, there is to be a new intermediate rate of 21 pence in the pound for earnings between £24,001 and £43,000 per year, with a new Higher Rate of 41% for income over that level. There will also be a new top rate of 46% for all earnings over £150,000 per year.
However, the Scottish Government have also forecast, that if your earnings are less than £33,000, you have nothing to be concerned about as you will now be part of the 70% of Scottish tax payers who will be paying less than they currently are under the existing rules; also, if you are earning less than £26,000 per year, you will also be part of the group who are the lowest taxed in UK, paying marginally less than employees elsewhere.
So, like most tax announcements, it appears there will be winners and losers.
Who are the Losers?
The losers will be those people earning more than £33,000 per year, who account for 30% of the total number of people paying income tax in Scotland.
Whereas previously they would have paid 20% on all income above their personal allowance, they will now be paying three rates of 19%, 20% and 21%.
If their income is greater than £43,000, then they will pay a fourth rate of 41%, up 1% on the previous Higher Rate. What this means in practice, is not so dramatic. Someone in receipt of £40,000 per year, under the new rules, will pay £5,770 per annum as opposed to the £5,700 they were paying (just £5 per month more).
Whereas, someone on £60,000 per year, will be paying £13,370 per annum, in contrast to the £13,100 per year they were paying. Just another £22 extra per month.
Why are the Scottish Government Increasing Tax Rates?
In return for these extra charges, the Scottish Government are forecasting they will be able to raise an extra £164 million per year, which they believe if invested properly in public services, will help safeguard services not available in England and which they believe will secure the support of Scottish taxpayers by giving them added value, such as free prescriptions and tuition fees (themselves worth up to £9,000 per year for students elsewhere in the UK).
No Cause for Concern?
So, are these new increases a cause for concern for Scottish taxpayers? It appears not at present, as they are modest in scale (even someone on £200,000 per year will pay just over 1% more on their gross income).
However, the Institute for Public Policy Research (IPPR) claims the increases will only delay cuts to services for another year, unless there are further increases to income tax. Perhaps more importantly, what the increases illustrate is the continued hard decisions that governments are having to make in deciding whether to cut services or increase taxes to fund them.
In an environment where interest rates are now seeing their first increases in 10 years and the cost of living is still rising by 3% per annum, the likelihood of further tax increases by the UK or the Scottish Government cannot be readily dismissed.
Preparing for Harder Times
All the evidence is pointing in the same direction and that is consumers now need to be carrying out financial health checks and probing the resilience of their finances. It is now time for people to be reigning in their unmanageable debts and seeking advice on how best to address them.
At Creditfix we seek to address these problems by working with our customers to find solutions, such as Protected Trust Deeds and the Debt Arrangement Scheme in Scotland or Individual Voluntary Arrangements in England, Wales and Northern Ireland.
If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.