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Explainer: Local income tax

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The Scottish Government is planning to introduce a local income tax which would be set nationally at 3p in the pound.

Depending on whether a deal is struck with the Liberal Democrats, councils may be given the power to set their own rates at some point in the future.

Ministers say four out of five households will be better or no worse off under the new tax, with only the top income decile, on average, paying more.

The tax would apply to income that is already subject to basic and higher rates of UK income tax, with exemptions for savings and investment income.

Unlike council tax, which is administered and collected locally, the new tax would be delivered nationally, probably by HM Revenue & Customs.

The notion of a local income tax was heavily criticised in a consultation over the summer by business, unions and public finance experts.

The Chartered Institute of Public Finance & Accountancy warned the tax could create a black hole of almost£750m in Scotland’s finances.

The Scottish Government’s plan has also fuelled a bitter dispute with Westminster over the£400m Scotland currently receives in council tax benefit.

The viability of the tax plan depends on Scotland continuing to receive that sum.But the Treasury has made it clear that if council tax is abolished in Scotland, the cash will disappear with it.

See also

Scotland council tax Pandora's box

Trust proposals under fire

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