For UK Financial Adviser only - not approved for use by retail customers. Visit our customer website.
Cookies
Back to Top

Scottish Rate of Income Tax - Facts


Introduction

The powers the Scottish government have over tax broadly fall into three categories:

  • Fully devolved taxes
  • Partly devolved taxes
  • Assignment of Taxes

The Scotland Act 2012 introduced Land and Buildings Transaction Tax and Scottish Landfill tax as fully devolved taxes, these have been in place since 1 April 2015. Income tax partially devolved to the Scottish government by the Scotland Act 2012 was the power to charge the Scottish rates on non-savings and non-dividend income to those defined as Scottish taxpayers.

Scotland Act 2016 built on this and provided the Scottish Parliament full flexibility over the income tax rates and limits applicable. It is important to note that the definition of a Scottish taxpayer and the type of income the Scottish rate applies to are unchanged and this remains a partly devolved power. Note that HMRC continue to be responsible for the collection and management of Scottish income tax. and as such it remains part of the existing UK income tax system meaning that it is not a devolved tax.

The Scotland Act 2016 also allowed for Air Departure Tax to be fully devolved with effect from April 2018 and Aggregates Levy is also fully devolved, as yet it is undecided when this will come into effect. VAT receipts will be partly assigned to Scotland from 2019/20.

What does it apply to?

The Scottish rate of income tax applies to non-savings, non-divided income only. This comprises  earnings, pensions, taxable social security payments, trading profits and income from property.

How is the rate calculated?

The rate paid by Scottish taxpayers is calculated by reducing the UK basic, higher and additional rates of income tax by 10 pence in the pound, then adding the rate set annually by the Scottish Parliament. The Scottish rate must be a whole number or half a whole number.

The Scottish basic rate, the Scottish higher rate and the Scottish additional rate for a tax year are calculated as follows.

Step 1
Take the basic rate, higher rate or additional rate.

Step 2
Deduct 10 percentage points.

Step 3
Add the Scottish rate (if any) set by the Scottish Parliament for that year.

The Scottish Government does not have the power to vary SRIT by band. It can only be applied equally to all tax bands, which means that any change to the rate would affect all basic, higher and additional taxpayers.

In 2017/18 the Scottish rate was set at 10%, so the Scottish basic, higher and additional rates will be in line with the UK rates.

Rates and bands for 2017/18

From 6 April 2016 tax codes will start with an 'S' for Scottish taxpayers. In addition, the self-assessment tax return has a box to inform HMRC that the Scottish rate applies.

Rates

  Scotland UK
Basic Rate 20% 20%
Higher Rate 40% 40%
Additional Rate 45% 45%

Bands

  Tax Band for Non-Savings, Non-Dividend Income Tax Band for all other types of Income
  Scotland UK Scotland UK
Personal Allowance £11,500* £11,500* £11,500* £11,500*
Basic Rate £11,501 - £43,000 £11,501 - £45,000 £11,501 - £45,000 £11,501 - £45,000
Higher Rate £43,001 - £150,000** £45,001 – £150,000** £45,001 - £150,000** £45,001 – £150,000**
Additional Rate £150,001** and over £150,001** and over £150,001** and over £150,001** and over

* Assumes individual in receipt of the Standard Personal Allowance

** Personal Allowance reduced by £1 for every £2 earned over £100,000

Who is a Scottish taxpayer?

An individual can only be a Scottish taxpayer if they are resident in the UK for tax purposes.  The legislation defines a Scottish taxpayer as an individual who:

  • Has a 'close connection' with Scotland
  • Has no 'close connection' with Scotland but spends more days of that year in Scotland than in any other part of the UK
  • is an MP for a Scottish constituency, an MEP for Scotland or an MSP

If an individual does not live in and has no connection to Scotland, they will not be a Scottish taxpayer. For an individual who lives Scotland for the full tax year, it is clear cut, they will be a Scottish taxpayer.

The situation will be different if the individual:

  • moves to or from Scotland during the year
  • has more than one home at the same time
  • has nowhere they can identify as their home

In any of these scenarios, the close connection to (main home) or number of days spent in Scotland will determine the tax status.

Moves to or from Scotland

If an individual moves to or from Scotland in the course of a tax year they will be a Scottish taxpayer if they live in Scotland for at least as much of the tax year as they live in any other country in the UK.

Alice rented and lived at a house in Birmingham for a number of years. On 30 June her rental on the Birmingham property ends and she immediately moves to a flat in Aberdeen. The time she spent living in Scotland in the tax year (1 July to 5 April) was longer than the time she lived in England (6 April to 30 June) so she is a Scottish taxpayer for the whole tax year.


Brian lived in Glasgow for many years. In the course of the tax year he sold his house in Glasgow and moved into a flat in Manchester where he stayed before moving to a new house in Bristol. During the tax year he spent:

125 days in Glasgow
120 days in Manchester
120 days in Bristol

Brian is not a Scottish taxpayer for the whole of the tax year because he lived in Scotland for less time than he lived in England (Scotland 125 days, England 240 days).

If HMRC changes an individual's tax rate, the new rate will be backdated to the start of the tax year in which the move occurred. The tax taken from the individual's salary or pension will be adjusted automatically so that the individual pays the right amount across the whole year.

If an individual has more than one home at the same time

Where an individual regards more than one place as home, one in Scotland and one elsewhere in the UK, they would count their 'main home' as the place they have the closest connection in terms of family, social and functional links.

This does not necessarily have to be the home where the individual spends most of their time.  The main home may be where:

  • most of their possessions are
  • their family lives, for example, if they're married, in a civil partnership or a long-term relationship
  • they are registered for things like a bank account, GP or car insurance
  • they are a member of clubs or societies

For example, if an individual lives in a home in England during the week to avoid a commute to work, but their family lives in the Scottish home and they return to the family home at the weekend.  If, in addition to this, they are a member of local clubs or groups and they are registered with the local dentist or doctor, Scottish taxpayer status would apply even though they technically spend more time in England.

If an individual has nowhere they can identify as their home

This scenario could arise if an individual would not regard a place they have stayed for regular periods as home, or if they live in various places and it is not possible to identify any one as the main home.

In this instance, the number of days spent in Scotland during the tax year would be counted and compared to the number of days spent elsewhere in the UK.  If the number of days spent in Scotland is more, then the individual is a Scottish taxpayer for the whole tax year.

Charlotte works for a consultancy firm  and travels round the UK on short term assignments, staying in hotels. She neither owns nor rents her own property. In the course of the tax year she spent:

150 days in Scotland
100 days in England
90 days in Wales
25 days in Northern Ireland

Charlotte has nowhere that could be regarded as home during the course of the tax year so the days she spent in Scotland are compared against the days she spent elsewhere in the UK. As the 150 days spent in Scotland are less than the 215 days  spent in another part of the UK, she is not a Scottish taxpayer.

The number of days is determined by where the individual was at midnight at the end of the day. 

If Dennis lived in Scotland from 10am on Monday to 5pm on Friday the same week, he spent 4 days there.

Someone who works offshore has spent a day in Scotland if they are up to 12 nautical miles from Scotland.

Where an individual is travelling between one non-UK country to another non-UK country and happen to be in the UK at midnight, it will not count as a day, unless they don't leave the UK the next day or carry out activities not connected with travel, such as a work meeting or visiting friends.

Interaction with other aspects of Income Tax

Reliefs and allowances, such as Personal Allowance and Personal Savings Allowance remain a UK 'reserved' matter.

It is important to note that although there is a separate Scottish tax band for non-savings, non-dividends income, where the income tax legislation refers to a 'higher rate taxpayer' or the 'higher rate threshold' for the purposes of determining other aspects of tax, the UK threshold of £45,000 will apply.

Capital Gains Tax (CGT) has not been devolved (nor the upper earnings threshold for NIC, IHT or Corporation Tax).

Personal Savings Allowance (PSA)

The amount of PSA an individual is entitled to is dependent on their tax situation, it is:

  • £1,000 for a basic rate taxpayer
  • £500 for a higher rate taxpayer
  • Nil for an additional rate taxpayer

When determining the amount of PSA that applies for Scottish taxpayers, the UK threshold of £45,000 will be used.  It will therefore be possible to be a higher rate taxpayer for SRIT purposes but below the UK higher rate threshold. In that case, a higher rate SRIT taxpayer will still be entitled to PSA of £1,000.

Chargeable Event Gains on Bonds

Chargeable Event Gains are savings income, therefore, the UK threshold of £45,000 should be used.  This is in relation to both the rate of income tax applied to the gain and the basic to higher rate threshold for top slicing purposes.

Gift aid

In the case of a Scottish taxpayer who has made a qualifying donation, the Scottish rate limits will be increased by the grossed up amount of the gift in addition to the basic and additional rate limits applicable elsewhere in the UK.

Pension Contributions

The overriding principle is that Scottish taxpayers will receive tax relief on their pension contributions at the Scottish rates.

Relief at source

Where an individual is a higher rate taxpayer for SRIT purposes, the Scottish basic rate limit will be increased by the amount of the contribution.

Edith is a Scottish taxpayer earning £50,000. Her tax liability is as follows

£11,500 @ Nil =
£0
£31,500 @ 20% =
£6,300
£7,000 @ 40% =
 £2,800
Total
£9,100

 

£11,500 @ Nil
£0
£31,500 @ 20%
£6,300
£7,000 @ 40%
£2,800
Total
£9,100

If she pays a net pension contribution of £5,600 then her Scottish basic rate limited will be increased by £7,000 meaning that she has no higher rate liability. Her tax relief will be £1,400 + £1,400 = £2,800/£7,000 = 40%

Her brother Felix who lives in England also earns £50,000. His tax liability is as follows

£11,500 @ Nil  =         £0
£33,500 @ 20% = £6,700
£5,000 @ 40% =   £2,000
Total                      £8,700

His tax liability (before pension) is £400 lower than Edith. This is simply the £2,000 differential in the basic rate limits x 20%. If Felix wanted to pay a pension contribution and obtain 40% tax relief then his net pension contribution would only need to be £4,000 (i.e. £5,000 gross).

Clearly, if Felix paid a gross pension contribution £7,000 like Edith, then his tax relief will be lower than 40%. It would only reduce his income tax liability by £1,000 (£5,000 x 20%) meaning his effective rate of tax relief would be just 34.3% (£1,400+£1,000) / £7,000.

Our Tax relief Modeller will calculate the appropriate tax relief for specific client circumstances

Registered pension scheme administrators and pension providers will have to make changes to their IT systems before April 2018, to enable them to claim relief at source at the correct rate from April 2018 onwards. If there had been a divergence of rates in 2016/17 then any adjustments would have been made by HMRC through self-assessment or PAYE coding.

Net pay

Pension scheme members who pay contributions to their employer's pension scheme under the net pay arrangement, will automatically receive tax relief on their contributions at the Scottish rates.

With regard to the calculation of the annual allowance tax charge, the Scottish rates of income tax should be used when making the calculation for a Scottish taxpayer.

Further information:

Work out if you'll pay the Scottish rate of income tax

Protection for tax payers (a Scottish Government news story)

Moving to & from Scotland

If you have more than one home at the same time

If you can't identify anywhere as your home

How you pay the Scottish rate

For UK Adviser Use Only - Not Approved For Use With Clients