The Scottish Parliament has confirmed the rates and thresholds for income tax that will apply to the non-savings and non-dividend income of Scottish taxpayers from 6 April 2017.
Background: Scottish rate of income tax (SRIT)
During the current tax year (2016/17), people who live in Scotland pay the SRIT. This only applies to non-savings and non-dividend income. Because of the way the SRIT works, and because the rate was set at 10%, the tax rates for Scottish taxpayers are the same as those for taxpayers elsewhere in the UK.
What the SRIT is, how it works and who has to pay it is explained in the ‘tax basics’ section of the LITRG website.
Tax year 2017/18
The Scottish rates and bands for income tax from 6 April 2017 are set out below:
|Scottish income tax rates 2017/18||Scottish income tax bands 2017/18|
|Scottish basic rate – 20%||£11,501 - £43,000 (£31,500)|
|Scottish higher rate – 40%||£43,001 - £150,000|
|Scottish additional rate – 45%||£150,001 and above|
What these rates and bands cover
In general terms, if your home is in Scotland for more than half of a tax year, you are a Scottish taxpayer (see Useful Links below for more detail). As these rates and bands apply only to the non-savings and non-dividend income of Scottish taxpayers, they will affect people who live in Scotland, if they have earned income, such as employment income, pension income, profits from self-employment, or profits from rental property.
Savings and dividend income
Scottish taxpayers will continue to pay income tax according to the UK rates and bands of income tax on their savings and dividend income.
The basic rate, higher rate and additional rate of tax will all be the same as those that apply in the rest of the UK: 20%, 40% and 45%.
Divergence between treatment in Scotland and the rest of the UK: the higher rate threshold
The only difference from the rates and bands that will apply to taxpayers in the rest of the UK is the higher rate threshold – the point at which individuals start to pay higher rate tax. If we assume that you are eligible for the personal allowance (£11,500 in 2017/18) and have only earned income, if you are a Scottish taxpayer, your higher rate threshold will be £43,000 for 2017/18, whereas if you are a UK taxpayer, your higher rate threshold will be £45,000.
Although there is only one point of divergence between the Scottish and UK rates and bands, this may create a few complexities for Scottish taxpayers. For example, Scottish taxpayers who have savings and dividend income as well as earned income will have to consider both the Scottish and the UK rates and bands when working out their tax liability. These complexities are explored in a blog on the Chartered Institute of Taxation website.
HMRC continue to collect and administer all income tax
Although the Scottish Parliament has set rates and thresholds for income tax payable by Scottish taxpayers on certain types of income, HM Revenue & Customs (HMRC) continue to collect and administer all income tax. This means that if you have any questions about your income tax, you should continue to contact HMRC.
If you are a Scottish taxpayer and have PAYE income during 2016/17, you should have a Scottish PAYE tax code (an “S” code).
The definition of a Scottish taxpayer is the same for the Scottish rates and thresholds as it is for SRIT. LITRG is currently updating its guidance in respect of the new rates and thresholds, and this will appear in the group’s ‘tax basics’ section in April.
NB: Make sure HMRC have your correct and up-to-date address
It is important to make sure that HMRC have your correct and up-to-date address. This is not the only factor in determining Scottish taxpayer, but it will be decisive in many cases.