Scottish Budget – Questions Answered

The wait is over. As expected, the Finance Secretary announced significant changes to Scottish Income Tax in yesterday’s budget, introducing new tax bands and rates, which will take effect from 6 April 2018.

 

WHAT ARE THE NEW SCOTTISH INCOME TAX RATES AND BANDS?

From 6 April 2018, new income tax rates and thresholds will apply as follows;

Income (£)	Name	Rate (%)
Below £11,850*	N/A	0
£11,850** – £13,850	Starter	19
£13,851 – £24,000	Basic	20
£24,001 – £44,273	Intermediate	21
£44,274 – £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.

 

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 in a company which pays dividends, or have significant 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.

However, calculating and understanding your tax liability could be significantly more complicated from 6 April, depending on your circumstances.

 

WILL I PAY MORE TAX THAN BEFORE?

This depends upon your individual circumstances, including the different types of income you receive as well as the level of your income overall.

In broad terms;

No, if you earn less than £33,000 per annum you will pay the same or less tax than you would otherwise.

Yes, if you earn above £33,000 you will pay more tax than you would do living elsewhere in the UK.

Further information and examples showing the impact of these changes will follow in future blogs.

 

In the meantime, if you have any queries or concerns regarding the impact of Scottish Income Tax please contact your usual AAB contact or email us at accountants@aab.uk.