The number of Scots paying the top rate of income tax is forecast to rise by almost 50 per cent in the next five years.
Experts from the Scottish Fiscal Commission (SFC) explained rising earnings are “sucking” more people into the additional rate band, which sees those north of the Border earning £150,000 a year or more paying income tax at 46 pence.
The SFC has forecast the number of Scots in this category is to increase from 14,900 in 2018/19 to 22,000 in 2023/24 – a rise of more than 47 per cent.
That increase is based on the threshold for the additional rate remaining frozen at £150,000 over the five years, Professor David Ulph from the SFC said.
He told MSPs on Holyrood’s finance committee: “Because we’ve assumed the top rate of tax threshold will be frozen at £150,000 throughout the five years of the forecast, if you are sitting just below £150,000 and you have say 2 per cent or 3 per cent growth in your earnings, you will inevitably be pulled above that £150,000 threshold.”
Pressed on how “robust” the figures for the forecast rise are, Prof Ulph insisted: “We do have a fairly good idea of the distribution of income among taxpayers.
“It’s not a guess. We have a pretty good idea of the shape of the income distribution in Scotland.”
Over the same period, the SFC has forecast the number of people paying income tax in Scotland will rise from 2,523,400 to 2,676,500.
The amount of cash raised from income tax is forecast to go from £11,452 million in 2018/19 to £13,805m in 2023/24.
Tory MSP Adam Tomkins questioned why income tax receipts were only set to rise “relatively modestly” at the same time as the number of top rate taxpayers is forecast to rise “very significantly”.
Professor Alasdair Smith from the SFC said this was because most of the increase in additional rate taxpayers would come from people whose income was previously just below the £150,000 threshold.
He told the committee: “The additional taxpayers are mainly coming from people whose incomes, because of income growth, move them from one taxpayer category to another.
“For the individual who moves category, they’re moving from just below the tax threshold to just above the tax threshold. Their marginal rate may go up significantly, but the actual tax bill paid by someone who moves from just below the threshold to just above the threshold changes relatively little.”