HM Insights

Scottish rate of income tax to remain the same for now

The Scottish Parliament has, for the first time, been able to set the Scottish Rate of Income Tax. This will come into force for the tax year 2016/17. The power to collect, manage and enforce the tax not being devolved remains the responsibility of the UK Government and HMRC.

Announcing Scotland’s draft Budget yesterday, Finance Secretary John Swinney ruled out an increase in the first year.

The Scotland Act 2012 provides that UK Income Tax rates will be reduced by 10p for every £1 (“10%”) effectively reducing the basic rate from 20% to 10%.   The Scottish rate is then set by the Scottish Parliament and applied to the UK income tax rate. If the Scottish Parliament was to set a rate of more than 10%, it would mean that Scottish income tax payers would be paying more income tax than the rest of the UK and vice versa if it was less than 10%. Setting a rate of exactly 10% would keep Scottish tax payers in line with the rest of the UK. 

This rate is inflexible so if it applies to those in the basic tax band, it must equally apply to those in the higher and additional rate tax bands.

For this reason, the Scottish Government has decided that the rate to be applied in the tax year 2016/17 will be 10%, meaning that Scottish tax payers will be paying the same rate of tax as tax payers in the rest of the UK.  Thus the rates for tax year 2016/17 will be:

  • Basic rate                20%
  • Higher rate              40%
  • Additional rate         45%

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To find out more how any changes to the tax regime could affect you and your family, please get in touch with our team.