My VIP Tax Team question of the week: Devolved Tax, what is the difference?
I have recently been engaged by clients based in Scotland and Wales. I am aware that there are some differences for certain taxes but what is the scope of such devolved taxes and where can I find more information?

The UK government retains responsibility for making decisions on all national powers that have not been transferred to the nations of Northern Ireland, Scotland, and Wales. For details of the devolved taxes, see the links to the Revenue Scotland, Welsh Revenue Authority and Local Government Association below –

Aspects of taxation that have or will be devolved, including to English local authorities, are –

English local authorities – Devolution explained | Local Government Association

  • In 2015, the UK Government confirmed that business rates would be retained by local government. Greater Manchester and West Midlands have agreed devolution deals and are retaining their local business rates.  Retention of 75% is currently being trialled in London and other areas of England.  There is no agreed timeline for full implementation.

Northern Ireland

  • Legislation was passed in 2015 to devolve corporation tax to Northern Ireland with the aim of reducing the rates to those applying in Ireland. Plans were postponed after the collapse of NI power-sharing in 2017. It is uncertain whether this tax will ever be devolved

Revenue Scotland – About Revenue Scotland | Revenue Scotland

  • Land and Building Transaction Tax
  • Scottish Landfill Tax
  • Set all rates and bands of income tax (except the personal allowance)
  • Half of VAT receipts collected in Scotland are also due to be ‘assigned’ to the Scottish government, same VAT rates to be applied
  • Air Departure Tax and aggregates levy: introduction date to be announced

Welsh Revenue Authority – Welsh Revenue Authority | GOV.WALES

  • Land Transaction Tax
  • Landfill Disposals Tax
  • Partial income tax powers, the Welsh Government sets its own Welsh rate of income tax for each band

SDLT v LBTT v LTT

The differences between SDLT and LTT are outlined at the link below –

https://gov.wales/land-transaction-tax-differences-stamp-duty-land-tax

For an overview of LBTT please see the link below –

https://www.revenue.scot/taxes/land-buildings-transaction-tax

As an example of what this means for a main residence replacement costing £250,000 with no additional property is below (additional property total charge on a £250,000 dwelling is in brackets) –

  • England and Northern Ireland SDLT – £2,500 (£10,000)
  • Wales LTT – £2,450 (£12,450)
  • Scotland LBTT – £2,100 (£12,100)

Income Tax

An example of Income tax due on an annual salary of £25,000 with the UK personal allowance is below (tax on a salary of £50,000 is in brackets). National Insurance remains a non-devolved tax –

  • England and Northern Ireland £2,484.20 (£7,484.20)
  • Wales, currently using UK rates £2,484.20 (£7,484.20)
  • Scotland £2,462.58 (£8,971.41)

The lower salary is charged more tax in England, Northern Ireland, and Wales than in Scotland, whereas the higher salary is charged more in Scotland than England, Northern Ireland, and Wales.

UK wide employers with a Scottish resident employee should operate a code with an S prefix to apply the correct tax rates, where this is not done, the tax deducted is incorrect. Welsh residents should have the prefix C within their PAYE codes which, at present, deducts the same tax as the UK rates.

As regards how the different Scottish rates of income tax effect pension contributions, this is explained by HMRC at PTM044220.

There is an excellent introduction to Scottish and Welsh income tax on the Low Incomes Tax Reform Group website –

How does Scottish income tax work

What is Welsh Income Tax?

Rental income from properties situated in a devolved nation and owned by a resident of England should continue to be returned on the UK property page (SA101) and not for the time being at least, on the foreign page (SA106)!

 

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