No details on Scottish Property Income Tax, but its introduction could be a further complication for Scottish taxpayers

Senga Prior, ATT Technical Officer, said:

“In the Scottish Budget documentation issued yesterday, it was noted that the UK government will increase the rates of tax charged on property rental income from 2027/28. The Scottish Parliament will be given devolved powers to set its own property tax rates.

“However, although this was acknowledged in the documentation, no indication was given as to whether this would be applied or not.

“People in Scotland who earn money from renting properties already pay different, and sometimes higher, income tax rates because of the Scottish income tax system. Any new Scottish Property Income Tax regime could further complicate the taxation of Scottish taxpayers.

“Another set of tax rates will make it harder for people to understand the tax rules that apply to them, particularly if they have different types of income and need to work out whether Scottish or UK tax rates apply.¹

“If the rates are higher than the rest of the UK, it could exacerbate an existing inequity where the tax relief for costs like residential property mortgage interest payments is linked to a lower tax rate than the one they pay.”²

Notes:

1. For example, a taxpayer could have income from a job and/or renting a property, where Scottish rates of tax apply. If they also have income from bank savings or share dividends, different, UK wide rates of income tax would apply.
2. Residential property finance costs such as mortgage interest are not deductible from income instead a relief, tied to the UK basic rate of tax is given. Because Scotland has different rates of income tax, the amount of relief can be more or less than the tax paid (i.e. currently taxpayers with income taxable at the starter or intermediate rate).