Scottish Finance Secretary Shone Robison has announced the introduction of a ‘mansion’ tax of properties worth more than £1m in her latest Budget.
The tax, similar to the one planned in England, will be introduced by April 2028.
The Finance Secretary announced the creation of two extra higher council tax bands, one for properties valued at between £1m and £2m, and the other for homes valued above £2m.
Whilst the Scottish ‘mansion’ tax appears harsher at first glance than its English counterpart, it will affect a smaller number of households.
The Scottish Fiscal Commission estimates that the new tax will affect fewer than 1% of Scottish households.
Charlene Young, senior pensions and savings expert at AJ Bell, said the change is more about the message sent to high net worth individuals by the Scottish Government than the affect it will have.
She said: “Although this might appear tougher than the England and Wales mansion tax, it is unlikely to raise much in the way of extra revenue for Scottish councils and is more about the message and optics of moving to what the SNP views as a fairer system.”
Marc Acerson, global wealth specialist at Utmost, warns that the new council tax bands could see some wealthy individuals leave Scotland.
He said: “This is indicative of a wider trend we are seeing across the Western world, with governments and policy makers increasingly turning to the wealth community to plug fiscal gaps. While this may seem like a politically lower-risk lever to pull, Scotland like other countries faces the reality that the wealth community is highly internationally mobile and even if such measures don’t end up being implemented, the mere suggestion of them can trigger behavioural responses, accelerate capital flight and ultimately leave governments with a smaller tax base.”
The Budget covers areas controlled by Scottish Parliament, with tax and spending plans for the next financial year.
Other measures announced yesterday include a 7.4% increase in the thresholds for both the basic and intermediate rates of income tax in Scotland.
The higher, advanced and top rate thresholds will remain at their current levels.
The Scottish Fiscal Commission estimates that 788,000 Scottish taxpayers will be paying tax at the higher rate and above from 2026 will still be paying considerably more tax by 2028/29.
Investment platform and SIPP provider AJ Bell said that Scottish middle earners will be particularly affected.
Charlene Young, senior pensions and savings expert at AJ Bell, said: “Middle earners with incomes between £43,663 and £50,270 are particularly squeezed as they will also face deductions for UK-wide National Insurance at the 8% rate on this band, giving them a marginal overall tax rate of around 50%, versus 42% for the rest of the UK on the same amount of earnings.”
Scottish taxpayers face different rates and bands of income tax for most of their taxable income including salary, bonuses and pension income. However, savings interest and dividend income are taxed at the same rate as the rest of the UK.