Scotland's highest earners are paying more tax than their counterparts in England, Wales and Northern Ireland, with government tax rates drifting further and further apart from the rest of the UK. Here's why it's time to move, writes Daniel Bentley-White
Income tax has now joined the list of things – along with banknotes, the number of King Jameses, and whether sheep’s lung is an acceptable dinner ingredient – that Scotland treats slightly differently to England and Wales. As of the start of the new tax year last Friday, a new 'progressive' system has been adopted which will diverge from the rest of the UK’s for the first time since the 1707 Acts of Union.
Where most of the UK currently pays a 20 per cent basic rate on income between about £11,850 and £46,350, Scotland now splits this into three bands ranging between 19 per cent and 21 per cent. The higher rate also kicks in slightly earlier north of the border. Of most concern to Scottish-based HNWs, however, will be the extra percentage point which has been tacked on to the higher and top tax rates (now at 41 per cent and 46 per cent respectively). The broad effect is that those earning the least will pay a little less, and those earning the most will pay a little more.
Labour and the Conservatives agreed that they disagreed with the tax changes, although they disagreed about why they disagreed. One party tutted that the reform didn’t go far enough in its aims, while the other sniffed that it would discourage investment. I’ll leave you to guess which was which.
Both sides do however have a point. Early assessments indicate that a low-earner on £15,000 will save just £20 per year, while the changes could cost the Scottish exchequer £20 million if only a handful of the highest earners shift their affairs south.
Moving to England, Wales, or Northern Ireland will be a tempting choice for Scottish high-earners in the coming years, and not only because these are places where bagpipe music is considered a nuisance rather than a cultural icon. A salary of £200,000 is now subject to almost £2,500 more tax in Edinburgh than in Edenbridge, in Aberdeen than in Aberystwyth, in Holyrood than in Holywood.
While it wouldn’t be worth physically upping sticks for the sake of this amount alone, HNWs with a presence outside of Scotland may be inclined to consider spending a little more time in a home in a different jurisdiction. With minimal effort and a little bit of calendar watching, they may be able to move their tax residence to a more favourable regime.
More to the point, the Scottish government was only recently devolved the powers to make its own income tax policy and has shown itself willing to use them. As Scotland’s tax rates drift further and further apart from the rest of the UK, Brexit Britain may find itself competing not only with the rest of Europe for the favour of mobile HNWs, but also with itself.
To badly paraphrase a famous film (because it was inevitable that I would quote Braveheart somewhere): they will never take our freedom (of movement).
Daniel Bentley-White works at boutique private wealth law firm Maurice Turnor Gardner LLP