The Scotland Act 2012 and a new constitutional settlement will transfer more powers to the Scottish Parliament. These changes will not be immediate but businesses should be aware of the areas most likely to be affected once the detail is negotiated. This is our analysis of what businesses should look out for in the coming weeks and months.
Scotland Act 2012
The Scotland Act 2012 will implement the following changes.
From April 2015 the UK Stamp Duty Land Tax (SDLT) will be replaced in Scotland by a Land and Buildings Transaction Tax collected by the Scottish government. It will apply to all real estate transactions in Scotland. Tax rates will be announced by December 2014 but are anticipated to differ to SDLT with more bands, lower scale relief, and higher rates for high-value transactions.
Also from April 2015 a Scottish Landfill Tax will replace current the UK landfill tax regime. The rates for the Scottish Landfill Tax will also be announced after September. The Scottish rate is unlikely to be set lower than the UK rate and could be set at a higher to incentivise sustainable waste management and generate additional revenue from landfill operations.
From April 2016 the UK basic rate of income tax for all Scottish taxpayers will be reduced to 10p in the pound. The Scottish Parliament will have to set a basic income tax rate to replace this revenue from taxpayers. The initial Scottish income tax rate is anticipated to be 10p in the pound to maintain overall parity with the rest of UK, but in time it may be varied above or below the UK rate. A new tax code will be required for all Scottish-domiciled employees, which means those spending more than half of their time in a tax year in Scotland.
There will be a corresponding reduction in UK Government funding for Scotland to reflect these tax changes. The Scottish government will also be able to borrow from capital markets, and will have powers to issue bonds.
Further devolved powers
Work begins today on the production of a draft Scotland Bill. The details for further devolution are still to be worked through and will be subject to public consultation in the coming months. This Bill may include the transfer of taxation and other powers from the Westminster to the Scottish Parliament.
The three main UK parties have each set out a range of proposals for further devolution including the transfer of income tax, capital gains and inheritance taxes, air passenger duty, some welfare benefits, and the establishment of a Scottish health and safety executive.
A draft Scotland Bill is expected to be published by January 25 2015, however, the detail of the final legislation and the extent of powers devolved will be decided by the party or parties that form the next UK government in May 2015.
The devolution of taxation powers to Scotland would require a review of the current UK government funding model for Scotland which would also affect UK government funding for Wales and Northern Ireland. This would be expected to reduce the UK funding to the devolved administrations to offset the transfer of tax-raising and other revenue raising powers such as capital borrowing.
Alastair Ross is a public affairs specialist at Pinsent Masons, the law firm behind Out-Law.com