What you need to know about the proposed changes to income tax in Scotland

All tax mentioned is subject to change and depends on individual circumstances.

What are the proposed changes to Scottish income tax rates for 2018/19?

The Scottish government has proposed to move to a five-band tax system, with the introduction of a starter rate of 19p from those earning from £11,850 and a new immediate tax rate of 21p from £24,001.

Under these proposals the higher rate of tax will be increased from 40p to 41p and the top rate from 45p to 46p.

When are the changes going to take place for 2018/19 tax year?

The plans were announced in December 2017 and the Scottish Parliament will have to debate the draft budget with a first chamber vote by the end of January. A final vote will take place in mid-February.

As the SNP is a minority government, they need the support of at least one other party to back up its proposals. If the proposed changes are passed as law, they will take effect from the beginning of April 2018.

Who is a Scottish taxpayer?

You must be a UK resident for tax purposes to be a Scottish taxpayer. If you are not a UK resident, you cannot be a Scottish taxpayer.

You are a Scottish taxpayer if you have a single or main residence in Scotland and not by your nationality or where you work. A UK resident will either be classed as a Scottish taxpayer or a UK taxpayer for a whole tax year only, not part of a year. You must inform the HMRC if you move address to or from Scotland.¹

How do HMRC identify Scottish taxpayers?

A Scottish taxpayer has the prefix ‘S’ at the start of their PAYE tax code. HMRC issue PAYE tax codes usually prior to the start of each tax year to employers and pension providers.²

What does Scottish income tax apply to?

It applies to employment, pensions and rental income. It does not apply to savings or dividend income so UK rates continue to apply to income from these sources. HMRC still manages the operation of Scottish income tax although money collected from it goes to the Scottish government.³

What does it mean for my pension?

Whether you are looking to take money from your pension or you’re still contributing to it, there are questions to how tax relief will be calculated due to the changes.

If you are taking out money and have already accessed your 25% tax-free cash, this money will be treated as income and you could well be taxed in-line with the proposed new five-band system.

Hypothetically, if your tax increases then the relief that you’ll get on your contributions will also rise resulting in a bigger boost to your pension contributions than others in the UK.

However, Scottish taxpayers will have to wait until mid-February for the government to shed light on the situation and be clearer about the way pensions will be affected. 

Where can I go if I have further questions about the Scottish income tax changes?

For more information about the Scottish income tax changes, visit www.gov.scot/Topics/Government/Finance/scottishapproach/Scottishincometax2018-2019

Call 0800 304 7288 for a friendly chat about your pension

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Frequently asked questions

Important information

¹Aegon UK – Scottish income tax, 27 December 2017

²Aegon UK – Scottish income tax, 27 December 2017

³Aegon UK – Scottish income tax, 27 December 2017

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