The MAM Blog – Scottish Income Tax Rates


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.

  • Firstly, the higher rate of tax has been increased from 40% to 41%, with the threshold restricted to £43,430. The corresponding level in the rest of the UK is £46,350.
  • Secondly, the basic rate of income tax has been split into three bands – the first £2,000 being taxed at 19% (the ‘starter’ rate), the next £10,150, being taxed at 20% (the new ‘basic’ rate) and the remaining £19,430 taxable at 21% (the ‘intermediate’ rate).
  • Finally, the additional tax rate, applying to income above £150,000, has been increased to from 45% to 46%.
  • 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.