What is devolution?
Devolution provides Scotland, Wales and Northern Ireland with forms of self-government within the United Kingdom. This includes the transfer of legislative powers to the Scottish Parliament, the National Assembly for Wales and the Northern Ireland Assembly and the granting of powers to the Scottish Government, the Welsh Government and the Northern Ireland Executive.
The UK Parliament remains sovereign in law and still legislates for Scotland, Wales and Northern Ireland. By convention, it does not do so for devolved matters without the consent of the relevant Parliament or Assembly.
Unlike Scotland, Wales and Northern Ireland, England does not have its own government and legislature. Different powers are devolved to each of Scotland, Wales and Northern Ireland.
In this section we look at devolved taxes and future proposals.
Which taxes are devolved in Scotland?
Powers over local taxation rest with Scotland – in particular, this means that decisions about council tax and non-domestic (business) rates for Scotland are made in Scotland. These taxes are administered and collected by local councils.
Following the Calman Commission, the Scotland Act 2012 and the Scotland Act 2016, two fully devolved taxes apply in Scotland from 1 April 2015. These are:
- land and buildings transaction tax, which replaced stamp duty land tax on transactions taking place in Scotland; and
- Scottish landfill tax, which replaced landfill tax on transactions taking place in Scotland.
Revenue Scotland is responsible for the collection and administration of these two devolved taxes. You can find out more information on the Revenue Scotland website.
The Scotland Act 2012 gave the Scottish Parliament the power to introduce a Scottish rate of income tax. The Scottish rate of income tax (SRIT) took effect on 6 April 2016 and applied to Scottish taxpayers during the tax year 2016/17. HMRC are responsible for collecting and administering the SRIT.
The Scotland Act 2016 gave the Scottish Parliament the power to set its own rates and bands for income tax. On this website, we call this Scottish income tax. Scottish income tax applies to Scottish taxpayers from 6 April 2017 onwards. HMRC are responsible for collecting and administering Scottish income tax.
What is the Smith Commission?
The UK Government set up the Smith Commission after the referendum on Scottish independence in September 2014. The Smith Commission published a report on further devolution of powers to the Scottish Parliament, including taxation.
The Scotland Act 2016 aims to take forward the recommendations contained in the Smith Commission report.
You can find the report on the website of the Smith Commission.
The Smith Commission recommended that income tax should remain a shared tax, but that the Scottish Parliament should have the power to set its own rates and thresholds. As with the Scottish rate of income tax, these would apply to the non-savings and non-dividend income of Scottish taxpayers. HMRC will continue to collect and administer income tax throughout the UK, including Scotland.
The Smith Commission also recommended that the first 10 percentage points of the standard rate of value added tax (VAT) applicable to Scotland should be assigned to Scotland.
The Smith Commission also recommended the full devolution of both air passenger duty and aggregates levy.
Which taxes are devolved in Wales?
Following the Silk Commission and the Wales Act 2014, some tax powers are being devolved to the Welsh Assembly. There will be a fully devolved Welsh land transaction tax and a fully devolved Welsh landfill disposals tax; these will replace stamp duty land tax and landfill tax on transactions taking place in Wales. These new devolved taxes have applied since April 2018. The Welsh Government has set up the Welsh Revenue Authority (WRA) to administer these devolved taxes and it has published its Charter for joint values, behaviours and standards.
The Welsh Assembly can already pass laws in respect of non-domestic rates (business rates) and council tax – these are classed as local taxation, rather than devolved taxes.
The Silk Commission also recommended the introduction of a Welsh rate of income tax which is planned to start from April 2019.
Which taxes are devolved in Northern Ireland?
The Northern Ireland Assembly can pass laws in respect of local taxation: domestic rates (Northern Ireland’s equivalent of council tax) and non-domestic (business) rates.
A law has been passed providing for the devolution of corporation tax powers to the Northern Ireland Assembly, but this is subject to commencement regulations. Northern Ireland had intended to set its own rate of corporation tax from April 2018.
Where can I find more information?
There is more information about devolution on the GOV.UK website.