Scotland’s New Taxes following Devolution

Whilst the Scottish may have voted to remain in the UK, the changes planned before power was devolved are coming into force, and will affect many taxpayers and employers throughout the UK.  

There are a number of new taxes that will be introduced, the first coming into force from 20 October 2014.

The first is the Scottish Bag Tax, effective from 20 October 2014, requires all retailers in Scotland to charge 5p for any bag used to deliver or take away goods from the place of purchase. This includes all single use carrier bags, including plastic, paper, bio-degradable and bio-plastic. This tax will apply to all in Scotland and anyone in the UK or overseas, who has purchased something online from Scotland.

Land and Buildings Transaction Tax

From April 2015, Stamp Duty Land Tax (SDLT) is to be replaced by Land and Building Transaction Tax (LBTT). The LBTT will apply to all transactions on land or property in Scotland, and will affect completions on and after 1 April 2015.

The SDLT charged as a fixed percentage on the whole purchase price, if the nil rate threshold is exceeded. The LBTT, however, will be charged progressively on the excess over the nil rate threshold on increasing percentage bands, as with income tax.

The rates for commercial property are as follows:

Purchase Price (£)

LRTT Rate (%)

0 – 150,000


150,001 – 350,000


Over 350,000







The rates for residential property will be:

Purchase Price (£)

LRTT Rate (%)

0 – 135,00


135,001 – 250,000


250,001 – 1,000,000


Over 1,000,000









 It is important to note that the average house price in Scotland is £162,000. The introduction of this higher stamp duty will undoubtedly have a huge impact on the Scottish housing market. Some critics have suggested it is possible house prices in Scotland will drop; and those with homes in both England and Scotland are expected to elect to be taxed in England.

Income Tax

From April 2016, the changes in Scotland will affect an increasing amount of UK taxpayers.

In Scotland, the UK element of income tax will be reduced to 10% lower than the rest of the UK. But the Scottish Parliament will then set its own income tax rates, which may add up to a further 20% for taxpayers who are Scottish residents. If the Scottish Parliament decides to add 11%, Scottish residents could end up paying more than the rest of the UK, taking their rates to 21%, 41% and 46%.

This will only affect an individual’s non-savings income, so Scottish resident trusts and estates in administration will only be taxed to UK income tax rates on all their income.

To qualify as a Scottish resident, you must be a UK resident with your main residence in Scotland. Those who have homes in Scotland and England must determine which residence they spend most time in and list that as their main residence.

The other major change will be to the application of the PAYE system. All payrolls operate the Scottish rates of income tax for Scottish residents, regardless of where in the UK or overseas their employer or payroll is based. Employers are warned that the PAYE codes for Scottish residents must be prefixed with an S, and their payroll software should be amended by 2016.