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Scottish Budget passed, but what does it mean to you?

Equalising the generations

Scottish Budget passed, but what does it mean to you?

The Scottish Budget has passed its final vote at Holyrood, with the controversial Income Tax proposals already having been approved in a separate vote on Tuesday as part of a deal between the minority Scottish National Party government and the Scottish Greens.

The new five-band system of Income Tax will come into force for Scottish taxpayers from 1 April 2018. The new tax bands and rates will be as follows:

Scottish bands   Band name Scottish rates %
Over £11,850 To £13,850 Starter 19
Over £13,850 To £24,000 Basic 20
Over £24,000 To £43,430 Intermediate 21
Over £43,430 To £150,000 Higher 41
Over £150,000 Top 46

In comparison the rates for the rest of the UK are:

Rest of the UK bands   Band name Rest of the UK rates %
Over £11,850 To £46,350 Basic 20
Over £46,350 To £150,000 Higher 40
Over £150,000   Top 45

The deal with the Greens has meant that the higher rate threshold, which had previously been announced as being set at £44,273 has been reduced to £43,430, pushing more Scottish taxpayers into the higher rate where 41% will be payable.

What are the implications?

The changes mean that a Scottish taxpayer earning £15,000 will pay £1.67 less Income Tax per month than someone in the rest of the UK, while this saving drops to 83p per month for an individual earning £25,000.

Those Scottish taxpayers who fall into the higher tax bands will however be worse off than taxpayers on the same wage in the rest of the UK. For example, someone earning £35,000 will pay £7 per month more in Income Tax, while those earning £45,000 will pay £42 per month more and anyone earning £150,000 will pay £161 per month more.

You will be subject to the Scottish Income Tax rates if you live in Scotland and this is generally determined if your main residence is in Scotland, this will be the case even if you work outside of Scotland. For example if you live in Gretna, but work in Carlisle then you will be deemed a Scottish taxpayer.

For most people this test will be straight forward as they either live in Scotland or they live elsewhere in the UK.  However if you have more than one home in the UK, one may be in Scotland and one may not, you will need to determine which is your main home.

If you are an employer then it is your obligation to ensure you hold the correct address for your employee’s main residence and ensure all of their personal details are up to date with HM Revenue & Customs.  Doing so will make sure that your employee pays the correct amount of Income Tax, be it as a Scottish taxpayer or a UK taxpayer.

If you are concerned about the impact on your household income or if you are unsure if the new Scottish Income Tax rates will apply to you, our Tax Specialists are on hand to provide you with advice on your personal position. Call 01228 711888 for more information.

Posted: February 22nd, 2018