Share with your friends

Scottish Draft Budget 2019/20

Scottish Draft Budget 2019/20

The Scottish Government announces its tax plans for 2019/20 - what do these mean for individuals and businesses?

Alan Turner - Partner and Head of Tax for Scotland at KPMG

Partner, Head of Tax in Scotland

KPMG in the UK


Also on


Our View

Jenny Stewart, Head of Infrastructure and Government Scotland, commented:

‘The context for Derek Mackay’s budget, and his decisions on tax and expenditure, has changed significantly since last year.

At last year’s budget, the new Scottish Fiscal Commission (SFC) was forecasting annual growth of less than 1% through to 2022.  The SFC’s new forecasts are more optimistic, with growth projections of 1.4% in 2018; 1.2% in 2019 and 1% in 2020.  These forecasts suggest slightly higher growth than the UK as a whole in 2018, but lower in subsequent years.

Also on the upside, the extra spending announced by the Chancellor in the October UK budget has fed through to an additional £720m in 2019/20 for the Scottish Government’s resource budget – on top of an additional £130m for 2018/19.  (Source: Scottish Parliament Financial Scrutiny Unit.)

These positives have given Derek Mackay much more room for manoeuvre, but the SFC has also downgraded forecast tax receipts.  In the medium term, while the SFC predicts that the growth rate of Scottish productivity will increase, they expect it to continue to lag behind the rest of UK.  Last year, the SFC forecast income tax receipts in 2018/19 of £12.1bn – that is now forecast at £11.5bn this year and £11.7bn next year. Overall, this has given Derek Mackay more flexibility than last year.  However, the impact of better overall economic growth forecasts and positive UK budget consequentials has been partially offset by the SFC’s forecasts on income tax receipts.’

Alan Turner, Head of Tax in Scotland, commented:

‘Against the backdrop of Brexit, many taxpayers and businesses will have been hoping for a low key Scottish Draft Budget on tax.  On the face of it, Derek Mackay appears to have delivered.  However, there were some surprises, particularly around LBTT.  As expected, the increase in the higher rate threshold for other UK taxpayers has not been mirrored in Scotland.  However, freezing the higher rate threshold was unexpected.  As a result, the differential between higher rate taxpayers in Scotland and those in the rest of the UK will widen further.

On the face of it, the increased differential seems to contradict the focus on making Scotland more competitive internationally.  The big question is whether this increased differential is significant enough to impact on Scotland’s ability to attract and retain talent. The SFC has estimated the impact of freezing the higher rate threshold.  It expects the change to bring an additional 24,000 people into the higher rate band and some behavioural changes.  It picks up on two key issues – the marginal rate of tax of 53% for the 120,000 people earning between £43,430 and £50,000; and the possible migration effect of the differential in tax rates between Scotland and the rest of the UK.  There was mixed news on LBTT.  For non-residential properties, the lower rate of tax was reduced to 1% (currently 3%).  However, this was accompanied by a proposed increase of the top rate to 5% (currently 4.5%).  The top rate will also kick in at a lower level on consideration above £250,000.

Positively, Mr Mackay capped the increase in business rates at 2.1%.  This is a welcome change, not least for small and medium sized businesses, and the struggling Scottish high street.

But today’s announcements are not the end of the story.  As a minority administration, the SNP Government will need to secure the support of at least one opposition party before the Parliamentary vote in early 2019.  Additionally, Derek Mackay reserved his position on revising the Scottish budget in the event of a ‘no deal’ Brexit.’

What you need to know

The Scottish Draft Budget for 2019/20 was presented to Holyrood on 12 December 2018 by the Cabinet Secretary for Finance, Economy and Fair Work. 

Read our ‘on a page’ for a summary of the main announcements.

Income tax

The key proposals are:

  • Freezing of the starter, basic, intermediate, higher and top rates;
  • Basic and intermediate rate thresholds to increase in line with inflation; and
  • Freezing of the thresholds at which the higher and top rates apply.

Proposed bands and rates for Scottish taxpayers

All UK tax resident individuals pay income tax on interest and dividends based on the same bands and rates set by the UK Parliament.  For Scottish taxpayers, all other income is subject to tax based on bands and rates set by the Scottish Parliament.  The proposed bands and rates for 2019/20 are set out in the table below.

Band Range* Maximum taxable income Rate
Starter Above £12,500 to £14,549 £2,049 19%
Basic Above £14,549 to £24,944 £10,395 20%
Intermediate Above £24,944 to 43,430 £18,486 21%
Higher Above £43,430 to £150,000 £106,570 41%
Top Above £150,000 N/A 46%


*The ranges of relevant income assume entitlement to a full standard Personal Allowance (which is set each year by the UK Parliament).  The Personal Allowance is reduced by £1 for every £2 of income that exceeds £100,000.

How does it compare to last year?

In summary, a Scottish taxpayer earning up to around £124,000 will pay less income tax than last year.

This is a result of the increase in the standard Personal Allowance set by the UK Parliament, and the inflationary increases in the starter and basic rate bands (which result in more income being subject to income tax at lower rates).

However, a Scottish taxpayer with earnings of above £46,630 will pay more income tax and NIC than last year, as a result of the NIC increases announced at the UK budget.The table below illustrates the implications of today’s income tax announcements (1) on their own; and (2) together with the NIC changes announced at the UK budget.Note that these are illustrations, and individuals’ personal circumstances will vary.


Income tax changes alone

(2019/20 versus 2018/19)

Income tax plus NIC changes

(2019/20 versus 2018/19)

£20,000 -130 -155
£30,000 -140 -165
£40,000 -140 -165
£50,000 -140 +197
£60,000 -140 +199
£70,000 -140 +199
£120,000 -140 +199
£160,000 +127 +466


(NB: ‘+’ denotes an increase, and ‘-’ a decrease, in income tax or income tax plus NIC in 2019/20 compared to 2018/19.)

How does it compare to the rest of the UK?

A Scottish taxpayer earning up to £26,990 should pay less income tax than other UK taxpayers.

The table below compares the positions of Scottish taxpayers in 2019/20 – based on the bands and rates proposed today – with those of other UK taxpayers. 

These figures are illustrative and individuals’ personal circumstances will vary.  

Income Scottish taxpayer compared to another UK taxpayer (2019/20)
£20,000 -20
£30,000 +30
£40,000 +130
£50,000 +1,544
£60,000 +1,644
£70,000 +1,744
£120,000 +2,344
£160,000 +2,769


(NB: ‘+’ denotes a higher, and ‘-’ a lower, income tax liability for Scottish taxpayers compared to other UK taxpayers.  These comparisons assume that the National Assembly for Wales will set income tax rates for Welsh taxpayers for 2019/20 that are the same as the main rates set by the UK Parliament.)

Business rates

The increase in non-domestic rates will be capped at 2.1%.  Any further increases during the current Parliament will be capped at increases in the Consumer Price Index.

The proposed Business Rate Levy, which would have allowed local authorities to impose a supplementary charge on out of town retail centres and online retailers’ distribution centres, will not be taken forward.  The position will be kept under review. 

Land and Buildings Transaction Tax (LBTT)

While there is to be no change to the LBTT rates and bands for residential transactions, the Additional Dwelling Supplement (ADS) is to increase from 3% to 4% with effect from 25 January 2019.  The ADS broadly applies to the acquisition of ‘additional’ dwellings by individuals and the acquisition of dwellings by companies.   

This increases the supplement in Scotland above similar charges which apply in England, Northern Ireland and Wales at 3%.

With effect from 25 January 2019, there will be changes to the LBTT tax rates and bands for non-residential property transactions.  

While the lower rate will be reduced to 1% (currently 3%), the higher rate will increase to 5% (currently 4.5%) and will apply on all consideration over £250,000 (currently the higher rate applies to consideration over £350,000).  The new rates and bands are set out in the table below.

Consideration Rate
Up to £150,000 0%
Above £150,000 to £250,000 1%
Above £250,000 5%


The changes to both the ADS and the LBTT rates and bands for non-residential transactions will not apply to contracts entered into prior to 12 December 2018 (subject to transitional provisions).

Following an initial consultation in 2018, the Scottish Government announced that there will be a further consultation with a view to introducing two targeted LBTT reliefs over the course of 2019 for Property Authorised Investment Funds (PAIFs) and Co-owned Authorised Contractual Schemes (CoACS).  These are a seeding relief for an initial transfer of properties to a PAIF or CoACS and a relief where units in CoACS are exchanged.  However, the consultation will only be published once there is greater certainty on the UK’s exit from the EU.

Environmental taxes

Scottish Landfill Tax (SLfT)

The standard and lower rates of SLfT are proposed to increase in line with the Retail Prices Index.

Material sent to landfill Proposed rates from 1 April 2019
Standard rate £91.35 per tonne
Lower rate £2.90 per tonne


The tax credit for contributions to the Scottish Landfill Communities Fund is proposed to remain capped at 5.6% of an operator’s total SLfT liability.

Other environmental taxes

Aggregates Levy has yet to be devolved, and Air Departure Tax (the devolved replacement for Air Passenger Duty) remains inoperative, pending resolution of EU state aid issues.

The status of these taxes appears unlikely to change in the near future.

Future devolved taxes?

The draft budget confirmed that whilst the Scottish Government has no plans to introduce a ‘Tourist Tax’, it will convene a series of national discussion events to hear views on the subject alongside evidence based research and analysis.

What happens next?

The SNP Government forms a minority administration, and requires the support of at least one opposition party in the Scottish Parliament to pass the budget.

Political negotiations might therefore result in some changes before the Scottish Draft Budget is finalised in early 2019. 

Additionally, the budget might be revised in the event of a ‘no deal’ Brexit.

© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

Connect with us


Want to do business with KPMG?


loading image Request for proposal