Scottish Budget Update - Scottish Tax Gap to Widen For Higher Earners

13 December 2018

Finance Secretary Derek Mackay has resisted calls to address the widening tax gap between Scotland and the rest of the UK.

The Higher Rate Tax threshold in Scotland is to remain frozen next year whilst this threshold will rise considerably for taxpayers in the rest of the UK following the Chancellor’s UK budget in October.

This means that from 6 April 2019 Scottish taxpayers will pay Higher Rate tax at 41% on income exceeding £43,430 per annum whilst UK taxpayers will pay 20% and will not become liable to UK Higher Rate tax of 40% until their income exceeds £50,000.

The impact on a Scottish resident taxpayer earning £50,000 will be an additional £1,500 of tax per annum than if they were resident in the rest of the UK.

National Insurance Also to Increase

Scottish taxpayers will also see their liability to National Insurance (“NI”) increase from 6 April. NI is still set by and paid to the UK Government, and whilst the primary rate for employees remains unchanged at 12%, this will now be payable on earnings up to £50,000 per annum because the upper threshold is aligned to the UK Higher Rate tax threshold.

As a consequence, the combined rate of Tax and NI in Scotland on earnings between £43,430 and £50,000 will be 53% compared to 32% for the rest of the UK.

Scottish Income Tax Rates and Bands

The Starter and Basic Rate bands are subject to modest inflation-based increases with the Higher rate and Top rate bands remaining as they are. The rates of tax are unchanged.

Therefore, from 6 April 2019, the income tax rates and thresholds will be as follows;

Income (£)

Name

Rate (%)

Below £12,500*

N/A

0

£12,501** – 14,549

Starter

19

£14,550 – £24,944

Basic

20

£24,945 – £43,430

Intermediate

21

£43,431 – £150,000***

Higher

41

Above £150,000***

Top

46

 

*No tax is payable on income below the Standard UK Personal Allowance, which is set by the UK Government.

**Assumes individuals are in receipt of the Personal Allowance.

***Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

 

Frequently Asked Questions

  • Am I Liable to Scottish Income Tax?

A Scottish taxpayer is anyone who is a UK taxpayer and has their main place of residence in Scotland.

If you have places of residence both in Scotland and elsewhere in the UK, a variety of factors will be taken into account in judging where your main residence is. These include where your spouse and/or children live, where you are registered to vote, where you hold club memberships, in addition to where you spend the majority of your time.

  •  Is All My Income Liable To Scottish Income Tax?

No, Scottish Income Tax only applies to “Non Savings/Non Dividend Income”.

As a result, Scottish Income Tax is payable on earnings from employment, self-employment, pensions and rental profits, but income tax due on savings and dividends continues to be set by and paid to the UK Government.

Therefore, if you own shares which pay dividends or have investment income you will be liable to a combination of both Scottish and UK income tax.

  • Do I Need To Do A Scottish Tax Return?

No, HMRC is responsible for the collection and management of Scottish income tax, and you will therefore report all of your income in a single UK tax return as before.

 

For more information, contact Derek Mitchell (derek.mitchell@aab.uk) or your usual AAB Advisor.

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