On 12 December 2018 Finance Secretary Derek Mackay delivered the 2019/20 Scottish Draft Budget setting out the Scottish government’s tax and financial plans.

Key announcements included new bands for Scottish income tax and changes to Land and Buildings Transaction Tax.

Scottish income tax

The Scottish government has devolved powers to set the rates and bands of income tax (other than those for savings and dividend income) which apply to Scottish resident taxpayers.

The Scottish Budget announced the following income tax rates and bands for 2019/20 which will be subject to Parliamentary approval:

2018/19	2019/20	Name of Band	Rate
Over £11,850* – £13,850	Over £12,500* – £14,549	Starter Rate	19%
Over £13,850 – £24,000	Over £14,549 – £24,944	Scottish Basic Rate	20%
Over £24,000 – £43,430	Over £24,944 – £43,430	Intermediate Rate	21%
Over £43,430 – £150,000**	Over £43,430 – £150,000**	Higher Rate	41%
Over £150,000**	Over £150,000	Top Rate	46%

* assuming the individual is entitled to a full UK personal allowance

** the personal allowance will be reduced if an individual’s adjusted net income is above £100,000. The allowance is reduced by £1 for every £2 of income over £100,000

The personal allowance is currently £11,850 for 2018/19. The personal allowance for 2019/20 will be £12,500.

Land and Buildings Transaction Tax (LBTT) changes

Currently higher rates of LBTT are charged on purchases of additional residential properties, such as buy-to-let properties and second homes. Although these are the main targets of the higher rates, some other purchasers may have to pay the higher rates.

The Additional Dwelling Supplement (ADS) potentially applies if, at the end of the day of the purchase transaction, the individual owns two or more residential properties.

The Scottish government announced an increase in the ADS from 3% to 4%. If approved by the Scottish Parliament, the rate change will come into force from 25 January 2019, but will not apply if the contract for a transaction was entered into prior to 12 December 2018. Existing arrangements allowing for the supplement to be reclaimed will continue.

Changes for non-residential rates and bands

The Scottish government will reduce the lower rate of non-residential LBTT from 3% to 1%, increase the upper rate from 4.5% to 5% and reduce the starting threshold of the upper rate from £350,000 to £250,000. Again, these changes are expected to come into force from 25 January 2019, but will not apply if the contract for a transaction was entered into prior to 12 December 2018.

The proposed rates and band for non-residential LBTT transactions are as follows:

Non-residential transactions

Purchase price	Rate
Up to £150,000	0%
£150,001 – £250,000	1%
Over £250,000	5%

Non-residential leases

Net present value of rent payable	Rate
Up to £150,000	0%
Over £150,000	1%

For further details on how the Scottish Budget could affect you, please contact us.

The Office of Tax Simplification (OTS) has published the first of two reports on inheritance tax.

The first report sets out an explanation of the issues and complexities of IHT, gives an overview of concerns raised by the public and professional advisors during the review and then makes recommendations. This first report examines the administrative issues that people complain about and which were raised in the responses. The second report covering other wider areas of concern to people will follow in Spring 2019.

The first report highlights the benefits of:

• reducing or removing the requirement to submit forms for smaller or simpler estates, especially where there is no tax to pay
• simplifying the administration and guidance
• the advantages of banks and other financial institutions having standardised requirements
• automating the whole system by bringing it online

Angela Knight CBE, OTS Chairman, said:

‘Inheritance tax is both unpopular and complicated. The basic design of the tax itself is for government, but at the OTS we can address that most frequent of all comments “at least make it easier for the families to fill in the forms”. The OTS has worked on ways to address these practical complexities, which have come through loud and clear.’

‘The recommendations in this report will make it easier for the majority, and would mean that in future, many may not have to do the forms at all. Improving the administration of this tax in these ways is important as having to deal with the current process can seem overwhelming to people at a time when they are both preoccupied and distressed.‘

Internet link: GOV.UK OTS IHT report

The Economic Affairs Committee has warned HMRC that small businesses ‘could pay a heavy price’ for Making Tax Digital for VAT (MTDfV).

The Committee stated that HMRC has’failed to adequately support small businesses’ ahead of the introduction of MTDfV.

MTDfV is generally set to come into effect for the from 1 April 2019 for businesses which have a taxable turnover above the current VAT registration threshold of £85,000. Under MTDfV, businesses must keep some records digitally and submit their VAT returns via an Application Programming Interface (API).

The Committee has urged HMRC and the government to ‘start listening’ to small businesses MTDfV concerns.

HMRC recently sent businesses within the scope of MTDfV so-called ‘encouragement letters’. These letters were sent to 200,000 businesses which are eligible to join the pilot scheme. 

Please contact us for help with MTDfV.

Internet links: Parliament.uk/news tax.org.uk/news

HMRC has warned that university students are being bombarded with fake tax refund emails. The scammers have targeted university students in an attempt to steal their banking and personal details using .ac.uk email addresses that look genuine, in order to avoid detection.

Mel Stride, Financial Secretary to the Treasury said:

‘Although HMRC is cracking down hard on internet scams, criminals will stop at nothing to steal personal information.

‘I’d encourage all students to become phishing-aware – it could save you a lot of money.’

In common with other tax scams, fraudsters send a message, including HMRC, GOV.UK or credit card branding, supposedly advising the recipient about a tax refund. Those taken in by the fake email are asked to click on a link and enter their banking and personal details. Fraudsters can use this information to steal money from bank accounts or to sell on to other criminals.

Internet link:GOV.UK press release

Some employers may wish to give a small gift to their employees. As long as the employer meets the relevant conditions, no tax charge will arise on the employee.

A tax exemption is available which should help employers ensure that the benefits provided are exempt and do not result in a reportable employee benefit in kind. In order for the benefit to be exempt it must satisfy the following conditions:

• the cost of providing the benefit does not exceed £50 per employee (or on average when gifts made to multiple employees)
• the benefit is not cash or a cash voucher
• the employee is not entitled to the benefit  as part of a contractual arrangement (including salary sacrifice)
• the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
• where the employer is a ‘close’ company and the benefit is provided to an individual who is a director, an office holder or a member of their household or their family, then the exemption is capped at a total cost of £300 in a tax year.

If any of these conditions are not met then the benefit will be taxed in the normal way subject to any other exemptions or allowable deductions.

No more than £50

One of the main conditions is that the cost of the benefit does not exceed £50. If the cost is above £50 the full amount is taxable, not just the excess over £50.The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to one or more employees can be treated as trivial. Where the individual cost for each employee cannot be established, an average could be used. Some HMRC examples consider gifts of turkeys, a bottle of wine or alternatively a gift voucher.

Further details on how the exemption will work, including family member situations, are contained in the HMRC manual.

However if you are unsure please do get in touch before assuming the gift you are about to provide is covered by the exemption.

Internet link: HMRC manual