As part of our helpful series of tax updates, we take a look at changes to the Scottish income tax (‘SIT’) bands which were announced at the Scottish Budget on 6 February 2020 and came into effect from 6 April 2020:
- There has been no change to the current SIT rates.
- The basic (20%) and intermediate (21%) band thresholds have been increased by inflation to protect lowest and middle income earners.
- The higher (41%) and additional higher rate (46%) band thresholds have been frozen.
We will look at what this means in practice for Scottish taxpayers and the interaction of SIT with other UK wide taxes.
Note: The tax raising powers relating to LBTT (the Scottish equivalent to SDLT) and SIT are devolved to the Scottish Government. Other taxes including capital gains tax (‘CGT’), inheritance tax (‘IHT’) and corporation tax continue to be reserved to Westminster.
From 6 April 2020 Scotland has the following income tax thresholds and income tax bands:
|Scottish Income Tax Bands||Bands||Rate|
|Personal allowance||First £12,500||Nil|
|Starter||£12,501 - £14,585||19%|
|Basic||£14,586 - £25,158||20%|
|Intermediate||£25,186 - £43,430||21%|
|Higher||£43,431 - £150,000||41%|
*The UK Government confirmed at the 2020 Budget that the UK personal allowance for income tax would be frozen at £12,500 in the 2020/21 tax year.
The Scottish Government have estimated that the introduction of these measures will result in 56% of Scottish taxpayers paying less tax than their counterparts earning a similar salary in the rest of the UK.
The Scottish Government announced that the freezing of the higher rate threshold will result in an additional £51 million in the 2020/21 tax year.
The following table demonstrates the impact on a higher rate Scottish taxpayer in the 2020/21 tax year with taxable earnings of £50,000 when compared to a taxpayer resident in another part of the UK.
|Income tax rate bands||Scottish taxpayer||Taxpayer in rest of UK|
|Personal allowance||0- £12,500||0||0 - £12,500||0|
|Starter||£12,501 - £14,585||396||N/A|
|Basic||£14,586 - £25,158||2,114||£12,501 - £50,000||7,500|
|Intermediate||£25,186 - £43,430||3,837||N/A|
|Higher||£43,431 - £50,000||2,693||N/A|
Note: The figures used in this comparison have been updated to reflect the 2020/21 position for the rest of the UK following the UK Budget on 11 March 2020.
A Scottish taxpayer with earnings of £50,000 will therefore pay £1,540 more income tax than their counterparts in the rest of the UK. This tax gap will only widen for Scottish higher rate taxpayers as their earnings increase.
What is Scottish income tax?
The SIT is a power which the Scottish Parliament has to set the thresholds and rates of income tax for Scottish taxpayers and therefore the amount that the Scottish Government has to spend. The Scottish Government have estimated that SIT receipts in Scotland will amount to around £12 billion in the 2020/21 tax year.
The SIT applies to the earnings of Scottish taxpayers arising from employment (e.g. salaries, bonuses, etc.), self-employment (e.g. sole-trader and partnership profits), pension income and income from property (e.g. rent). The UK thresholds and rates of income tax continue to apply to savings income (e.g. interest, dividends, etc.)
The UK Parliament retains control of all other aspects of the income tax regime, including setting the level of the personal income tax allowance and introducing and altering available income tax reliefs, such as those applicable to gift aid donations to charity and pension contributions. Scottish taxpayers therefore benefit, for example, from any increase in the income tax personal allowance announced at the UK Budget.
To find out more about Scottish income tax including:
- How it works
- How is it administered
- Who it applies to
- Any potential implications
Read our Scottish income tax guide here.
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