The Scotland Act 2012 gave the Scottish Parliament the power to set the Scottish rate of income tax (National Insurance rates continue to be uniform across the United Kingdom). The Scottish rate of Income Tax came into effect from 6 April 2016.
The Scottish Parliament has confirmed the rates and thresholds for income tax for Scottish taxpayers. The upcoming tax year will see the first major divergence from the rates covering the rest of the United Kingdom. The following rates will apply for employees living in Scotland:
- Starter Rate on the first £2000 of income above personal allowances - 19%
- Taxable earnings between £13851 and £24000 – 20%
- Taxable earnings between £24001 and £43430 - 21%
- Higher Rate on earnings between £43431 and £150000 - 41%
- Additional Rate (Scottish top rate) - 46%
How do the rates impact on other taxes and tax reliefs?
Capital Gains Tax
Capital Gains Tax rates will continue to be set by the UK Government. Therefore Scottish taxpayers with Capital Gains Tax liabilities will need to consider both UK and Scottish rates and thresholds
National Insurance Contributions
There are no amendments to the NIC bandings and thresholds. The rates are aligned with those set by the UK Parliament.
Marriage Allowance
The marriage allowance is available to married couples and civil partnerships where one party has unused personal allowances. If the higher earner is a Scottish taxpayer in 2018/2019 and has total income between £43430 and £46350, on which they pay the Scottish higher rate, they are not eligible for the transfer of the marriage allowance.
However, if they paid UK tax on those rates they would be eligible for the transfer of the Marriage Allowance.
Pension Contributions
Now it gets complicated!! HMRC have indicated that for 2018/2019 pension providers will continue to claim tax relief at 20% for Scottish taxpayers. This will apply to all taxpayers with earnings up to £24000. So taxpayers paying both the 19% and 20% rates will qualify for relief at 20%.
Scottish taxpayers taxed at the 21% rate, will receive only 20% relief at source. The additional 1% relief is claimable however this can be done through Self-Assessment or by contacting HMRC.
Scottish taxpayers who are liable to tax at the higher rates of 41% and 46% will recover the additional relief, over 20%, through Self-Assessment or by contacting HMRC. If tax relief is claimed via a Salary Sacrifice, tax relief is obtained at source via the payroll, no claims are required to HMRC. Of course via Salary Sacrifice employees also receive relief from employees National Insurance on the amount sacrificed. Finally the correct operation to the Scottish tax rates is dependent on HMRC having correct personal addresses. All employees should ensure that if they move to and from Scotland, HMRC are notified without delay to ensure the correct deductions are made from payroll.
