Although most of the levers of powers remain at Westminster, the decentralisation of tax-setting powers to Scotland and Wales – along with mounting calls for the English regions to have greater power – is altering the country’s fiscal dynamic.

There are signs that businesses are already getting to grips with the change that is unfolding. 2019 is likely to be the year this debate becomes more prominent.

The taxation of people and property are areas where devolution is having the greatest impact. Yet it might surprise you to note that the most visible of these – income tax – is not completely devolved.

 

Devolution of tax impacting income tax

 

This is because collecting and administering all aspects of income tax remain the responsibility of HMRC. This includes those parts of income tax that are devolved to Scotland and Wales, being non-savings and non-dividend income (i.e earned and rental income). The UK, meanwhile, continues to set the personal allowance and decides the tax base (what should be taxed).

The Welsh will remain aligned with England and Northern Ireland for the next year at least, but the Scottish system has taken on a distinctly different look, with the introduction of new rates and bands.

 

Tax competition between Scotland and the rest of the UK

 

This has prompted discussion around the potential impact of tax competition on Scotland and the rest of the UK. This situation could be particularly relevant to Wales and its porous border with England. Residency, the criteria for deciding whether you pay devolved rates of income tax, may come into sharper focus given the steady flow of workers between nations within the UK.

Businesses with a pan-UK presence will want to know the additional costs they potentially face, such as increasing salaries to compensate for higher tax burdens.

 

Devolved taxes for income from property

 

Property taxes are diverging between the nations of the UK, both for commercial and residential purchases. Two more tax authorities – Revenue Scotland and the Welsh Revenue Authority – are responsible for administering the fully devolved taxes.

Questions are also being asked about whether more can be done to devolve taxes in England. The rise of combined authorities, calls for the devolution of stamp duty, reform of council tax and business rates, all of these pose questions for the capacity of the current system to drive the localism agenda.

Until now, it may have felt that tax devolution has been an exercise in tinkering around the edges. However, the trend towards greater – not less – devolution is gathering pace.

Devolution is radically altering the UK’s tax landscape. While these issues will rise in prominence in 2019, the discussion still has a long way to go.