Richard Johnston – Financial Planning Director
The Scottish Parliament now has much greater power to adjust income tax rates for Scottish residents and has taken the opportunity to do so for 2018/19.
This divergence creates some complexities because the Scottish Parliament’s powers do not extend to savings interest, dividends or Capital Gains Tax – all of which work by being added to the individual’s other taxable income to determine the rate at which they are payable.
In addition, National Insurance (NI) rates and thresholds are not controlled by the Scottish Parliament. For example, as NI rates are 12% for basic rate taxpayers and 2% for higher rate taxpayers, Scottish taxpayers’ earnings between £43,430 and £46,350 will therefore now be taxed at 53% (i.e. 41% + 12%), before falling back to 43% beyond this.
Personal pension and charitable contributions are also affected, as the default rate of relief applied remains at 20%, but a Scottish taxpayer will have the right to claim the additional 1%.
It is therefore clear that the changes introduced will not only lead to additional tax for Scottish taxpayers, but potentially some confusion and administrative burden.