Scotland’s Income Tax Changes Confirmed

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The move by the Scottish government in its December Budget to create five tiers of income tax hit an obstacle in the form of resistance from the Green Party. A compromise was reached and on 20 February Holyrood confirmed by 67 votes to 50 the new tax structure. As a reminder, for 2018/19 Scottish taxpayers will face the following tax bands:

Taxable Income£ Band Name Tax Rate%
0-2,000 Starter 19
2,001-12,150 Basic 20
12,151-31,580 Intermediate 21
31,581-150,000 Higher 41
Over 150,000 Top 46

Note that:

• These rates apply to non-dividend, non-savings income only;
• UK-ex Scotland rates apply to dividend and savings income;
• UK-ex Scotland tax bands apply to capital gains tax; and
• Scotland does not set NIC rates or limits, so there is now a £2,920 gap (£46,350 – £43,430) between the UK-wide Upper Earnings/Profits Limit (set in line with the UK ex-Scotland higher rate threshold) and the starting point for Scottish higher rate tax. The result is a marginal rate in that band for Scottish residents of up to 53% (41% + 12%).

One fascinating problem which has emerged is the transferable tax allowance for married couples and civil partners. Section 55B(2)(b) of the Income Tax Act 2007 makes it a requirement for eligibility that “the individual is not, for the tax year, liable to tax at a rate other than the basic rate, the dividend ordinary rate or the starting rate for savings”. While Scotland kept a 20% basic rate (which solves relief at source issues), it has slotted in a 21% intermediate rate above, starting at £12,151 of taxable income. How a Scottish intermediate taxpayer (rates set in Scotland) will be able to claim the transferable allowance (allowances set UK-wide) is furrowing a few brows in Holyrood and Westminster, according to weekend press reports.

In 2019 Wales will be able to set its own tax rates. Scotland is providing it with a useful insight into where the bear traps are located.

Source: https://www.techlink.co.uk/

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