On 20 February 2018 the Scottish Parliament passed its Budget Bill for 2018/19 which saw the introduction of five tax bands for non-savings income.

This includes earned income and benefits, profits from self-employment, rental profits and pension income (including State Pension). The Scottish tax rates do not apply to dividend or savings income as these tax rates remain within the UK government powers.

 

The table below provides details of how the differences in the Scottish tax rates between 2017/18 and 2018/19.

	2017-18		2018/19
Starter rate	n/a	n/a	19%	£11,850* – £13,850
Basic rate	20%	£11,500* – 43,000	20%	£13,851 – £24,000
Intermediate rate	n/a	n/a	21%	£24,001 – £43,430
Higher rate	40%	£43,001 – £150,000	41%	£43,431 – £150,000
Additional rate	45%	£150,001 and above	46%	£150,001 and above

* Assumes that the standard personal allowance is received (2017/18 – £11,500; 2018/19 – £11,850).

 

How does this compare to the rest of the UK for 2018/19?

	UK rates and bands		Scottish rates and bands
Starter rate	n/a	n/a	19%	£11,850* – £13,850
Basic rate	20%	£11,850* – 46,350	20%	£13,851 – £24,000
Intermediate rate	n/a	n/a	21%	£24,001 – £43,430
Higher rate	40%	£46,351 – £150,000	41%	£43,431 – £150,000
Additional rate	45%	£150,000 and above	46%	£150,001 and above

* Assumes that the standard personal allowance is received.

 

What does this mean for me?

Let’s assume there is a Scottish and UK taxpayer who both earn £45,000, what are the respective tax liabilities for these taxpayers? Assuming the standard personal allowance of £11,850 is available then both taxpayers will be liable to income tax on £33,150.

	UK taxpayer	£	Scottish taxpayer	£
Starter rate	n/a	–	£2,000 x 19%	£380
Basic rate	£33,150 x 20%	£6,630	£10,150 x 20%	£2,030
Intermediate rate	n/a	–	£19,430 x 21%	£4,080
Higher rate	n/a	–	£1,570 x 41%	£644
Total liability		£6,630		£7,134

The Scottish taxpayer will pay an additional £504 income tax.

 

The situation becomes more complex when Scottish taxpayers also have income that is subject to UK tax rates i.e. savings or dividend income. Where Scottish taxpayers have earned income between the Scottish higher rate threshold (£43,431) and the UK higher rate threshold (£46,350), as in the above example, additional income from savings and/or dividends will be taxed at the UK basic rate until total income exceeds the UK higher rate threshold. This is also the case for 2017-18.

 

Additional complexities

National Insurance contribution (NIC) rates have not been devolved to the Scottish government and are aligned with the UK higher rate threshold. Scottish taxpayers will pay Class 1 at 12% and Class 4 at 9% on earned/self-employed income between the Scottish higher rate threshold of £43,431 and the UK higher rate threshold of £46,350.

 

Construction Industry Scheme (CIS) deductions will still be made at the UK rates of 20% or 30%, depending on whether the subcontractor is registered or not. Scottish taxpayers will be liable to income tax at the Scottish rates on earned income under the CIS scheme and their tax liability on this income will be calculated when their tax returns are submitted.

 

Savings and dividends rates thresholds are in line with rest of UK so a Scottish taxpayer may be a higher rate taxpayer on their non-savings income but still be a basic rate taxpayer on their savings income.

 

Capital gains tax is aligned with rest of UK and again a higher rate taxpayer in Scotland may still be a basic rate taxpayer capital gains tax purposes.

 

Pension contributions relief at source is given at 20% for all taxpayers. Scottish taxpayers may need to file a tax return to claim extra relief if they are taxed at 21% or 41%.

 

If you would like to discuss these issues with our experts, or think we can help, then please do not hesitate to contact us.