What do the new Scottish income tax rates mean for you?

So much for simplification of tax! There will be 5 Scottish income tax bands from 1 April instead of 3. Governments seem to swing between making income tax rates simple and more “fair” which seems to mean more complicated!
Here’s what difference it will make to you.
Currently the rates look like this:

Scottish income tax rates Scottish bands
Scottish Basic rate 20% Above £11,500* up to £43,000
Scottish Higher rate 40% Above £43,000 up to £150,000
Scottish Additional rate 45% Above £150,000**

From 1 April it will be:

Bands Band name Rates (%)
Over £11,850*-£13,850 Starter Rate 19
Over £13,850-£24,000 Basic Rate 20
Over £24,000-£43,430 Intermediate Rate 21
Over £43,430-£150,000** Higher Rate 41
Above £150,000** Top Rate 46

* Assumes person is in receipt of the Standard UK Personal Allowance
** Personal Allowance is reduced by £1 for every £2 earned over £100,000

The Scottish rates apply to you if your MAIN RESIDENCE is in Scotland, not if you work in Scotland and live elsewhere.

Dividend income will still be taxed at 7.5%. For now. So if you own your own company, it still makes sense to take some of your income as dividend if you can.

The new starter rate appears to give you the benefit of just £20 (1% of the £2,000 difference between 11,850 and £13,850 – the 20% rate currently kicks straight in after the personal allowance). So not as generous as it looks.

Finance Secretary Derek Mackay said “"The new 'starter' rate, combined with the increase in the personal allowance, will ensure that no-one earning less than £33,000 – which is 70% of all taxpayers – will pay any more in tax than they do now for given incomes."

Those earning about £33,000 or more are likely to pay a bit more. Someone earning £40,000 is likely to pay an extra £70 a year, and someone on £60 a year about £184 more.

There are complications for tax relief on pension contributions for Scottish tax payers. Relief is a complex matter and depends on your marginal tax rate and whether or not the contributions are being paid with relief at source or under net pay arrangements. If you would like help in this complex area, as ever, please give us a call or email.

So in summary, neither as generous nor as nasty as it might have been, but certainly as unnecessarily complicated!

Wishing you an uncomplicated week.


If you would like the detail on tax relief on pension contributions read on here: https://www.gov.uk/government/publications/pension-schemes-relief-at-source-for-scottish-income-tax-newsletter-february-2018

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