Evolving landscapes: devolved taxes in Scotland

Evolving landscapes: devolved taxes in Scotland

The Scotland Act 2012 introduced new tax powers to the Scottish Parliament.

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The tax landscape in Scotland continues to evolve. The Scotland Act 2012 introduced new tax powers to the Scottish Parliament. Following the Smith Commission report, further change is coming.

What's new?

The Scotland Act 2012 devolved powers over certain taxes in Scotland to the Scottish Parliament. From 1 April 2015, Land & Buildings Transactions Tax (LBTT) will replace Stamp Duty Land Tax (SDLT), and Scottish Landfill Tax (SLfT) will replace Landfill Tax. Income tax in Scotland is also changing, with certain powers transferring from Westminster to Holyrood. These powers were considered by the Smith Commission which published Head of Terms on 27 November 2014. Following this, draft legislation was published by the UK Government on 22 January 2015, which will implement the majority of changes recommended by the Smith Commission. In addition, the draft clauses propose the allocation of the first 2.5 percentage points of the reduced rate of VAT to the Scottish Government’s budget. The legislation will go through the parliamentary process immediately after the UK general election in May.

How can we help?

These changes will impact on both businesses operating in Scotland, and individuals living here. We will help you navigate the changing tax landscape in Scotland with regular updates and insights on proposals as they develop.

For more information, please read the following:

  • Land and buildings transaction tax
  • Environmental taxes
  • Scottish income tax
  • Further devolution
Land and buildings transaction tax
From 1 April 2015 Stamp Duty Land Tax will be replaced in Scotland by Land and Buildings Transaction Tax (LBTT). LBTT will apply to land transactions in Scotland. This devolved tax will be managed by the new Scottish tax authority Revenue Scotland. Proposed rates and bands for LBTT were announced on 9 October 2014 when the 2015/16 draft Budget was introduced to the Scottish Parliament. The Scottish Government then amended the residential rates on 21 January 2015, following the changes to Stamp Duty Land Tax announced in the autumn statement.

Environmental taxes

Scottish landfill tax

From 1 April 2015 Landfill Tax will be replaced in Scotland by Scottish Landfill Tax (SLfT). SLfT will apply to materials disposed of as waste at landfill sites in Scotland. This devolved tax will be managed by the new Scottish tax authority Revenue Scotland. Proposed rates for SLfT were announced on 9 October 2014 when the 2015/16 draft Budget was introduced to the Scottish Parliament.

Proposed rates:

  • Lower rate for qualifying materials - £2.60 per tonne
  • Standard rate for non qualifying materials - £82.60 per tonne

Air Passenger Duty & Aggregates Levy

The Smith Commission also proposed that Air Passenger Duty (APD) and, subject to the resolution of an EU enquiry into state aid, Aggregates Levy be devolved to the Scottish Parliament.  The draft legislation issued on 22 January 2015 includes clauses that will implement this change.  The date for devolution of these taxes is yet to be announced.

Scottish income tax

Under the Scotland Act 2012 from 6 April 2016 each of the main rates of income tax paid by Scottish Taxpayers on non-savings income will be reduced by 10 percentage points. The Scottish Parliament may then set a single uncapped top-up SRIT, which would apply across each income tax band, to be paid by Scottish Taxpayers on non-savings income. In summary, a ‘Scottish Taxpayer’ is a UK resident individual who has a closer connection to Scotland than to any other part of the UK during a particular tax year.

However, the Scotland Act 2012 changes will be superseded by the Smith Commission’s proposals on income tax in subsequent years. Under these proposals, the Scottish Parliament will be given the power to set the income tax rates and bands that apply to the non-savings income of ‘Scottish Taxpayers’ without restriction. The draft legislation issued on 22 January 2015 included clauses that will implement these changes. The timing for the introduction of this change is still to be confirmed.

Further devolution

The Smith Commission also recommended that part of the income from VAT be assigned to the Scottish Government’s budget. The first 10 percentage points of the standard rate of VAT raised in Scotland will be assigned, but VAT itself will remain a reserved tax as required by EU law.

The draft legislation issued on 22 January 2015 also proposed that the first 2.5 percentage points of the reduced rate of VAT be allocated to the Scottish Government’s budget.

All other taxes and National Insurance Contributions are to remain reserved to the UK Government.

Insights - UK

Evolving Landscapes: Post Referendum - December 2014

Following the no vote in the Scottish independence referendum, we considered how the tax landscape in Scotland is changing. We discussed the impact of the initial LBTT and SLfT rates. We also considered the role of the Smith Commission, and the proposals on devolution by the main Westminster political parties.

Evolving Landscapes: Guide to Devolved Taxation, the Scottish Rate of Income Tax and tax implications of the Independence Referendum - July 2014

Prior to the referendum, we published a paper on what the future might look like from a tax perspective, looking at the timeline for tax in Scotland over the next few years and the range of alternative tax landscapes post 18 September.

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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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