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Scotland brings in new income tax bands

Higher earners in Scotland will be paying more income tax in 2018/19 than anywhere else in the UK.

Finance secretary Derek Mackay decided to introduce 2 new Scottish income tax bands in his Draft Budget 2018/19, which was delivered on 14 December 2017.

A new starter rate of income tax will see those earning less £13,850 a year paying 1 percentage point less than in 2017/18, at 19p in the pound.

However, earnings between £24,000 and £44,273 will fall into a new intermediary rate of income tax which is 21%.

Mackay opted to freeze the basic rate of income tax at its 2017/18 rate of 20%, although higher rate taxpayers face a 1p in the pound tax rise - from 40% to 41%.

The following Scottish rates of income tax will take effect from 6 April 2018:

Scottish bands 2018/19 18/19 tax 2017/18 17/18 tax
Personal allowance Up to £11,850 0% Up to £11,500 0%
Starter rate £11,851* to £13,850 19%    
Basic rate £13,851 to £24,000 20% £11,501 to £43,000 20%
Intermediary rate £24,001 to £44,273 21%    
Higher rate £44,274 to £150,000** 41% £43,001 to £150,000 40%
Top rate  Above £150,000** 46% Above £150,000 45%

*Assumes individuals are in receipt of the personal allowance. 
**Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.

A new relief is also to be introduced for first-time buyers in Scotland, who will be able to buy a property for up to £175,000 without being liable for land and buildings transaction tax (LBTT).

Mackay claims 80% of first-time buyers will pay no LBTT as a result of introducing the relief, which will come into effect on 6 April 2018 (subject to a consultation).

In other noteworthy measures introduced by the finance secretary, the 1% cap on public sector salaries in Scotland will be lifted for 2018/19.

The pay policy includes a 3% rise for those earning less than £30,000 a year, and caps the pay bill at 2% for individuals earning over £30,000 a year.

Annual pay rises will be limited to £1,600 for public sector workers earning in excess of £80,000 a year.