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Scottish Income Tax

The Scots have whiskey, boiled eggs wrapped in sausage meat and Sean Connery. And now they have their very own rate of income tax. Here’s what you need to know.

How do HMRC determine what makes you Scottish?

Do they test the strength of your accent or raid your wardrobes for kilts? No, in fact they ignored all our suggestions. At a high level, you will be subject to Scottish Income Tax if you have a Scottish address. It doesn’t matter where you’re employed or where you spend the most time; HMRC only care about where your home is. And if its north of Hadrian’s Wall, you need to learn some new tax rates.*

2018/19 Scottish Tax Rates

Tax BandThresholdTax Rate
Personal Allowance£11,850**0%
Starter RateThrough to £13,85019%
Basic Rate BandThrough to £24,00020%
Intermediate BandThrough to £43,43021%
Higher Rate BandThrough to £150,00041%
Additional Rate Band£150,001 +46%

2018/19 Tax Rates in the Rest of UK

Tax BandThresholdTax Rate
Personal Allowance£11,850**0%
---
Basic Rate BandThrough to £46,35020%
---
Higher Rate BandThrough to £150,00040%
Additional Rate Band£150,001 +45%

** The above assumes the taxpayer is in receipt of the standard UK Personal Allowance. This is reduced by £1 for every £2 of UK taxable income in excess of £100,000 and is not available for remittance basis filers.

How does it work?

Scottish Income Tax only applies to earned income only (i.e. employment, self-employment or partnership income) – it does not apply to interest or dividends which are still taxed in line with the rest of the UK.

Once HMRC have determined an individual is subject to Scottish Income Tax, they will update their PAYE tax code so that it is prefixed with an “S”. PAYE will then automatically be withheld in line with the tax rates above. You should therefore ensure HMRC have your up-to-date address details and that you review any changes in your tax code.

Who is better off?

Ah. The most important question of all.

There’s no telling how Scottish Income Tax will deviate in future tax years. The Scottish parliament have the devolved power to set their own rates now. But for the 2018/19 tax year, the crucial figure is £26,000.

If your earned income is less than £26,000, you are (slightly) better off in Scotland. If your earned income is more than £26,000, you are better off living elsewhere in the UK. And the differential grows the more you earn. Here are a few quantitative examples for 2018/19:

  • Employment income of £16,000: £20 better off in Scotland
  • Employment income of £26,000: No difference
  • Employment income of £80,000: £1,124 worse off in Scotland
  • Employment income of £200,000: £2,324 worse off in Scotland
  • Employment income of £1,000,000: £10,324 worse off in Scotland

Book a free consultation with Berg & Williams today if you are unsure about your tax status.

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