Whatever the outcome of the 2014 independence referendum, taxation in Scotland will soon be markedly different from taxation in the rest of the UK. There will be a Scottish rate of income tax, a new tax authority (Revenue Scotland) and both stamp duty land tax and landfill tax will have been replaced with devolved Scottish taxes. A wide-ranging anti-avoidance rule will apply to the devolved taxes.

A brief summary of the changes already announced is set out below.

Scottish Rate of Income Tax ("SRIT")

  • Not a "devolved" tax - it will continue to be administered by HMRC.
  • All income tax rate bands payable by Scottish tax payers will be dropped by 10%. Scottish Government will have discretion to set SRIT at any rate on top of that – the same rate of SRIT will apply to all tax rate bands.
  • Will only apply to "Scottish tax payers". Generally, this means UK residents either with a close Scottish connection (based on place of residence) or spending most of their time living in Scotland.
  • Will only apply to "non-savings" income, e.g. employment, trades, professions, vocations, pensions and rental income.
  • HMRC will issue PAYE "S" codes for Scottish tax payers.
  • No changes to non-resident landlord scheme or construction industry scheme.
  • UK double taxation agreements will continue to apply.

Land and Building Transaction Tax ("LBTT")

  • From April 2015, Scottish property transactions will be subject to the devolved tax of LBTT, rather than stamp duty land tax ("SDLT").
  • Rates are not to be announced until September this year, but unlike the "slab tax" system used by SDLT, rates of LBTT will be progressive.
  • Sub-sale relief as it is found in SDLT will be unavailable. However, a limited relief may be extended to certain forward funding transactions.
  • Payment of tax mandatory before registration of title by Registers of Scotland.

Scottish Landfill Tax ("SLT")

  • From April 2015, deposits of landfill Scotland will be subject to the devolved tax of SLT, rather than UK landfill tax.
  • Initially, SLT will have the same rates as UK landfill tax.
  • SLT's structure is very similar to UK landfill tax, but illegal disposals of waste will also be subject to SLT.
  • SLT will be administered by the Scottish Environmental Protection Agency.

Revenue Scotland ("RS") and the Scottish General Anti-avoidance Rule

  • When enacted, the Tax Powers Bill will establish RS.
  • RS' general function will be the collection and management of the devolved taxes.
  • Scotland will have its own tax tribunal bodies.
  • Scotland will have a broadly drafted "general anti-avoidance rule" ("GAAR"), with the aim of "counteracting tax advantages arising from tax avoidance arrangements that are artificial".
  • In complex commercial transactions, considerable uncertainty could arise from the Scottish GAAR as, for example, it requires consideration of whether the substantive results of the arrangement are consistent with the policies and principles on which the tax legislation in question is based (whether express or implied).
  • Unlike UK-wide general anti-abuse rule, no advisory panel will be available to assist with administration of the regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.