Scottish Taxes – Update on Changes to Tax Relief

As we head into the start of the new 2018/19 financial year, further details unfold in relation to the new Scottish rates of tax.

Our earlier blogs detail the finalised rates of tax and the implications this will have on Scottish tax payers.

HMRC continues to publish updating guidance and as of 21 March 2018 have confirmed the following:-

1. Marriage allowance – can continued to be claimed by Scottish tax payers at the current basic rate (20%). There will be no reduction for those who are in fact paying tax at the “starter rate” of 19%. Furthermore, those who pay at the “intermediate rate” will not lose out as this is no longer technically the basic rate of tax.

2. Gift Aid – Scottish tax payers will be able to claim the right amount of additional relief on top of the usual basic rate top up paid by HMRC to the charity

3. Pension Relief – again per our previous blog, the standard 20% relief will be applied across UK tax payers. Therefore those Scottish tax payers with a rate of 21%, 41% or 46% will be eligible to claim additional relief through self-assessment or by contacting HMRC. There will be no adjustment to those paying tax at the starter rate of 19% (they will still receive 20% relief for 2018/19).

4. Pension Lump Sum – changes will be introduced so that any Scottish tax payer who pays tax at the rate of 19% will only be taxed at this rate when receiving a Social Security lump sum. Therefore it should not be necessary for the 1% additional tax (the basic rate) to be reclaimed.

5. Finance Cost relief – for those with rental properties subject to finance, the standard 20% relief rate will be available. There will be no changes for Scottish tax payers at the starter tax level.

Of course the new tax rates will be a work in progress for some time to come, whilst both HMRC and the tax payer become accustomed to the new levels of complexity that come with Scotland’s ability to set its own tax rates. No doubt the processes will be fine tuned over the coming years, but for now the above positions seem to provide a sensible way forward.

Many in receipt of PAYE income will begin to receive their 2018/19 tax codes, which at first glance may seem somewhat complicated! We have already began the process of working through new codes to help our clients understand the actual impact of the new rates on their personal income, but please do get in touch if you would like us to check your own position – Always happy to help.

We are here to help and support you throughout these changes. If you require any assistance please do not hesitate to contact Lynn Gracie, Private Client International Tax Director, or your usual AAB contact.