Welsh government to introduce distinct income tax rates

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The Welsh government will introduce distinct rates of income tax for UK taxpayers residing in Wales from April 2019.

The new Welsh rates of income tax have been announced as part of the Welsh government’s Draft Budget 2018-2019 outline proposals report, published in October 2017. The report outlines the fiscal framework agreed by both Welsh and UK governments in December 2016, which proposed that the three income taxes imposed by UK government are reduced by £0.10 for UK taxpayers who live in Wales. Welsh ministers will then recommend that the Welsh rates of income tax be applied in addition to the reduced UK income tax rates. The National Assembly will then vote on the new Welsh rates, which are due to come into effect from April 2019.

The majority of income tax responsibilities, such as setting the personal allowance, setting the income thresholds at which tax rates will apply, and the taxation of income from savings and dividends, will still be carried out by UK government, with HM Revenue and Customs (HMRC) continuing to administer and collect income tax payments.

The Welsh government has assumed there is no net budgetary impact from the introduction of Welsh rates of income tax for the 2018-2019 tax year, however ministers have provided indicative allocations for 2019-2020 in the draft budget, estimating that 13% of the Welsh government’s funding will be derived from the Welsh rates of income tax.

The cabinet secretary for finance and local government, Mark Drakeford, has agreed the priorities for the change in income tax process with the financial secretary to the Treasury. These include reaching an early agreement as to the costs of implementing the Welsh rates of income tax, to ensure all involved parties, including the National Assembly and Finance Committee, are kept fully informed and engaged with the implementation process, that HMRC provide relevant data in a timely fashion to inform decision-making by Welsh ministers in setting the new rate, for the HMRC and Welsh government to work jointly on communications, and that the Welsh government have a full understanding of compliance issues associated with this change.

The Welsh government has confirmed that it will not increase income tax in Wales during this assembly term.

Wales will collect its first national taxes for almost 800 years from 1 April 2018 under the new draft Budget proposals.

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In the report, Drakeford said: “This is a new Budget for Wales. Today marks another milestone in our devolution journey as the Welsh government sets out more than its revenue and capital spending plans in this draft Budget. For the first time ever, this draft Budget will outline our taxation and our borrowing proposals, as we exercise the new fiscal responsibilities which have come to Wales.

“From 1 April 2018, Wales will collect its first national taxes for almost 800 years as stamp duty land tax and landfill tax are devolved, to be replaced by land transaction tax and landfills disposals tax, respectively.”