Draft Scottish Rates of Income Tax (Consequential Amendments) Order 2024
(2 days, 19 hours ago)
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The Economic Secretary to the Treasury (Tulip Siddiq)
I beg to move,
That the Committee has considered the draft Scottish Rates of Income Tax (Consequential Amendments) Order 2024.
It is a pleasure to serve under you as Chair, Sir Roger. The draft order enables the calculation of deficiency relief to take account of the introduction of the Scottish advanced rate of income tax. Deficiency relief reduces the tax that some individuals are required to pay when certain life insurance policies come to an end. It applies in unusual circumstances in which the policyholder would otherwise be taxed on more than the actual economic gain they made on the policy. That might include when a tax charge arose on an earlier withdrawal.
On 22 February this year, the Scottish Parliament introduced the new Scottish advanced rate income tax band. That means that, from 6 April 2024, the former Scottish higher rate income tax band was split into the Scottish higher rate and the Scottish advanced rate income tax bands. The current deficiency relief rules do not take account of the new tax band. This reduces the amount of deficiency relief available to a small number of Scottish taxpayers from 6 April 2024.
The order applies from 6 April 2024, and ensures that the new Scottish advanced rate of income tax can be included in the calculation of deficiency relief. At the same time, the Government are taking the opportunity to simplify the wording of the legislation. The order ensures that the calculation of deficiency relief takes account of the new Scottish advanced rate of income tax.
James Wild (North West Norfolk) (Con)
It is a pleasure to serve under your chairmanship, Sir Roger, and I am grateful to the Minister for her opening remarks and her brevity in setting out what the draft order does.
The new rates introduced by the Scottish Parliament mean that the higher income tax band is 42% and the Scottish advanced income tax rate is 45%. The order will avoid disparity, and we will not seek to divide the Committee—although that was tempting before the reinforcements turned up on the Government Benches. It is worth highlighting that the Scottish Parliament’s changes have made their tax system more complex; there are now six rates compared with three across the rest of the UK.
I will ask the Minister some questions, as we have all gathered here. What is the impact of deficiency relief payments on Exchequer revenues? How many taxpayers in Scotland will benefit—she referred to a small number—and what will the impact be on revenue? Given that the measures relate to changes from the beginning of this tax year in April, will she confirm that she will seek to bring in such provisions in response to changes more rapidly than the six months that this has taken?
In conclusion, although this order is needed due to the increased complexity of the Scottish Government, thankfully, these provisions actually simplify the effect in legislation.
Tulip Siddiq
I thank the hon. Gentleman for his co-operation and for commenting on the lateness of some of the people behind me—I am sure that the Whip will have taken notice of that, but not me, because that is not my job.
Only Scottish taxpayers who are entitled to deficiency relief and who pay tax at the Scottish advanced rate of income tax will be affected. The measure only affects Scottish taxpayers who claim deficiency relief and whose tax is taxable at the Scottish advanced rate of income tax. I cannot give the hon. Gentleman an absolute number, but the criteria apply to people whose income is taxable at the Scottish advanced rate of income tax, as he referenced.
The hon. Gentleman will be pleased to know that guidance is available. The “Insurance Policyholder Taxation Manual” from His Majesty’s Revenue and Customs contains guidance on deficiency relief. It will be updated to reflect these changes, so people can refer to that, and it is available on gov.uk.
I will answer a question about the order applying retrospectively, because I think the hon. Gentleman alluded to that. The Scottish advanced rate of income tax applies from 6 April 2024, but applying these provisions from the state ensures that no taxpayers are adversely affected. I hope that those answers are satisfactory—[Interruption.] I am being handed another piece of paper, which I will read. Oh, the number affected is fewer than 10, and the Exchequer impact is less than £5 million per annum. I hope that satisfies him.
This order ensures that the calculation of deficiency relief takes account of the new Scottish advanced rate of income tax. I am glad that the Opposition will not oppose it and are in agreement. I commend the changes to the Committee.
Question put and agreed to.