On Tuesday 19 December 2023, Shona Robison – Scotland’s deputy first minister and finance secretary – set out the Scottish government’s spending plans for the 2024/25 tax year. Some of the measures announced could affect your personal finances, including a change to Income Tax bands.
Robison described the Budget as the “toughest” since the creation of the Scottish Parliament in 1999.
The government faces an estimated £1.5 billion hole in its books, which it sought to close through key announcements. The gap has been partly linked to surging inflation and the pressure this has placed on government spending.
The Scottish Budget comes just weeks after the 2023 Autumn Statement, which was delivered by chancellor Jeremy Hunt. Among the announcements made in the Autumn Statement were reducing the rate of National Insurance for employees and self-employed workers and confirmation that the State Pension “triple lock” will remain in place.
Read more: Everything you need to know about the 2023 Autumn Statement
In the Scottish Budget report, Robison says: “Budgets are about choices. They are a distillation of what defines a government, a demonstration in pounds and pence of its priorities and its values.”
She added that the UK government had failed to use the Autumn Statement to invest in public services and critical national infrastructure by instead opting to prioritise tax cuts ahead of the upcoming general election.
So, what choices have the Scottish government made, and how could they affect you?
A new “advanced” Income Tax band will be added in 2024/25
The key change to Income Tax is the introduction of an “advanced” band.
From 6 April 2024, earnings between £75,001 and £125,140 will fall into the new band and will be subject to a 45% tax rate.
In addition, the top-rate of Income Tax will rise by 1% to 48% in the next tax year. So, your tax liability could rise in April 2024.
The Income Tax rates for 2024/25 will remain the same for starter- basic-, intermediate-, and higher-rate taxpayers.
However, the thresholds for paying the starter- and basic-tax rate will increase in line with inflation to £14,876 and £26,561 respectively.
For the 2024/25 tax year, Income Tax thresholds and rates will be:
The government forecasts the introduction of the advanced tax band and increasing the top-rate to 48% will raise an additional £82 million in 2024/25.
Freezing the higher-rate threshold, rather than increasing it in line with inflation, is anticipated to boost government coffers by £307 million. It’s estimated it will lead to an extra 62,000 workers paying an Income Tax rate of 42% or more from April 2024.
According to the Institute of Fiscal Studies (IFS), the changes mean a Scottish taxpayer with an income of £125,000 will pay £5,221 more in Income Tax than they would elsewhere in the UK – the equivalent of a 7% hit in their post-tax income.
Firms may benefit from frozen business rates
The deputy first minister also announced support for businesses.
Business rates for premises valued at less than £51,000 will be frozen. The measure is expected to save firms £37 million when compared to an inflationary increase.
Hospitality businesses located on the Scottish Islands could also benefit from 100% relief in 2024/25, up to £110,000 a business. The report stated this was in recognition of the “specific challenges” firms face in island communities.
The government will “fully fund” a Council Tax freeze
The Scottish government will make available an additional £144 million of funding to councils who agree to “fully fund” a Council Tax freeze in 2024/25. Combined with other measures, local government funding will increase by 6% when compared to the last budget as a result.
The tax decisions announced, including changes to Income Tax policy and the freeze in Council Tax, will provide a net benefit to around 60% of Scottish households.
Public spending priorities in 2024/25
According to the IFS report, the higher forecast Income Tax along with several other factors, means that compared to original Budget plans for 2023/24 funding for day-to-day spending is set to increase by around 4% in real terms.
As part of the Budget 2024/25, the government set out how it’ll allocate money in the new tax year to fund public services. Among the key spending announcements were:
- The Scottish Child Payment will rise from £25 a week to £26.70 in April 2024
- Free school meals will continue for primary 1 – 5, with £43 million invested to extend the programme to those in primary 6 and 7
- NHS boards will receive a 4.3% funding rise, the equivalent of an extra £550 million
- The Scottish Police Authority budget will increase by £75.7 million
- The Scottish Fire and Rescue Service will benefit from an additional £13.5 million for resource spending, plus an extra £10.3 million to improve facilities.
Get in touch
If you have any questions about how the Scottish Budget 2024/25 may affect your finances, please contact us.
Please note: Information is from the Scottish Budget: 2024 to 2025 report.
The content of this Scottish Budget summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.
