Taxpayers living and working in Scotland do not necessarily pay all their taxes to Holyrood. Income tax payable on employment, self-employment, rents, pensions and benefits in kind stay in Scotland, together with half of the VAT receipts and all of the land and buildings transaction tax. However, taxes raised on savings, dividends and capital gains are all paid to Westminster, together with all national insurance, inheritance tax, corporation tax and half of the VAT receipts.
Consequently, Scottish taxpayers have to note what tax they are dealing with to know whether the Scottish rules or the UK rules apply. The UK Government set the basic income tax personal allowance and this is set to rise to £12,500 on 6 April 2019. The Scottish Government cannot change this allowance, but they can change both the rates of tax and the banding where higher rate tax applies. In 2018/19 the band at which higher rate tax applies is set at £2,920 lower in Scotland than the rest of the UK. From 6 April 2019 this band is to rise by a further £3,000 in the UK. It will be interesting to see what the Scottish Government do in response. If they do nothing and freeze the band then taxpayers earning £50,000 in Scotland will pay £1,417 more in income tax than they do in the rest of the UK.
In a Budget which was hailed as trying to stimulate the economy, the Chancellor increased the available tax relief on machinery from £200,000 to £1m bought in any one year from 1 January 2019. Whilst this sounds generous, most farmers will not benefit from this as taxable profits are not at that level. Where farmers are likely to benefit, however, is in the introduction of a new relief for structures and buildings. Older farmers will remember agricultural buildings allowance and this seems a similar relief. The finer detail of the relief is out for consultation, but it will cover non-residential structures. So sheds will be included. The cost of land and the cost of obtaining planning permission is excluded from relief.
Relief will be provided on eligible construction costs incurred on or after 29 October 2018 at an annual rate of 2% on a straight line basis. A shed costing £50,000 will therefore attract relief of £20,500 for a higher rate taxpayer spread over fifty years, being £410 tax saving per annum.
For farmers who are employers, there is a reminder about the pension auto-enrolment contribution increase. Currently employers pay a minimum 2% of staff salaries into a pension whilst employees pay a minimum of 3%. On 6 April 2019 the employer’s cost rises to 3% and the employee’s rate increases to 5%.
There was an unexpected development with regard to auto-enrolment in that the Chancellor is to consult over extending mandatory pension contributions to the self-employed. The rate he has in mind is 4% of taxable profits. It will be interesting to see how this works in practice as pension contributions have to be made in the tax year to which they relate and taxable profits are often determined long after the pension payment deadline.
On capital gains tax, the only meaningful tinkering was to extend the asset ownership period from one year to two years to qualify for Entrepreneurs’ Relief. However, taxpayers should remember that from 6 April 2020 capital gains tax arising on any residential property will have to be paid within thirty days of the sale. This will mean taxpayers should be aware of the cost of the property before the property is marketed to ensure that this deadline can be met in time.