Pippa Samphier

Ahead of next week’s general election, there is a level of uncertainty amongst Scottish businesses, especially when it comes to tax reform.

Last week, Scotland’s Deputy First Minister Kate Forbes said the Scottish Government’s progressive taxation policy remains “under review”, due to existing concerns that income tax rates discourage taxpayers from staying in or relocating to Scotland for work.

Labour has also recently outlined its plans to raise up to £10 billion in tax rises, including hikes to capital gains tax and inheritance tax (IHT) to boost public services funding. But, with Scotland’s middle and high earners already feeling the squeeze of paying more income tax than their peers in the UK, could further tax rises push skilled workers out of Scotland?

Recent data from HMRC shows that IHT receipts for the tax year to April 2024 reached £7bn, continuing a two-decade upward trend. IHT has a rate of 40%, but it has many reliefs and exemptions available. These reliefs are used mostly by larger estates, with the effective rate of tax dipping below 20% for estates worth more than £10 million.

It is argued that the reliefs available are unfair, and costing billions to operate, but have the potential to raise substantial revenue.

HMRC confirmed that in 2023-24 the operation of agricultural property relief and business property relief alone cost more than £1.7bn. With more taxpayers being impacted by inheritance tax due to frozen rates, tax reforms have the potential to impact many.

In considering how the next government might approach tax policy, the Institute of Fiscal Studies (IFS) has targeted three specific reliefs for reform, with the potential to raise up to £2.7bn during 2024/25 by abolishing certain IHT reliefs for agricultural property and certain business-related assets.

While restricting reliefs helps to raise revenue, the next government must outline how this applies across the UK, as IHT planning presents both challenges and opportunities for different businesses and regional economies.

In Scotland, the next government needs to ensure tax reforms level the playing field across the UK, to boost Scotland’s economy and ensure career prospects north of the border rival those available in London and the South East.

Pippa Samphier is a private client tax associate at RSM UK’s Aberdeen office