How does Scottish income tax work?

Updated on 4 June 2017

If you are a Scottish taxpayer, you might have to understand Scottish income tax (and the Scottish rate of income tax (SRIT) in 2016/17). We explain how Scottish income tax (and SRIT for 2016/17) works, how it is collected and how it affects things like gift aid donations and pension contributions.

Scottish income tax applies from 6 April 2017. The SRIT applied during 2016/17.

Scottish income tax (SRIT in 2016/17) only affects Scottish taxpayers. It applies to non-savings and non-dividend income only. Scottish taxpayers continue to pay income tax at the same rates that apply in the rest of the UK on their savings and dividend income.

The Scottish Government proposes its rates and bands for Scottish income tax in its annual draft budget, published in the autumn. These rates and bands must then be agreed and put into law by the Scottish Parliament.

The rates and bands are on our page ‘what is Scottish income tax?'

How does Scottish income tax work for 2017/18 onwards?

From 6 April 2017, the Scottish Parliament sets the income tax rates and bands that apply to the non-savings and non-dividend income of Scottish taxpayers.

This means that Scottish taxpayers do not pay income tax according to the UK rates and bands on their non-savings and non-dividend income.

The Scottish Parliament has the power to set as many rates and bands as it would like. For 2017/18, it has chosen to retain the UK income tax rate and band structure, with a basic rate, higher rate and additional rate. It has also decided to keep the same rates of tax – 20% (basic), 40% (higher) and 45% (additional).

The Scottish Parliament has set one different threshold for income tax from the rest of the UK. The threshold between the basic rate band and the higher rate band is set at £43,000 for those entitled to the UK personal allowance, compared to £45,000 in the rest of the UK. The basic rate band for Scottish income tax is therefore £31,500 (43,000 – 11,500 personal allowance).

If Scottish taxpayers have taxable savings income, such as bank interest, or taxable dividend income, this is subject to the main UK rates of income tax for those types of income.

Scottish income tax does not affect the tax allowances to which you are entitled, such as the personal allowance.

From 2017/18 onwards the amount of income tax you pay on non-savings and non-dividend income according to the Scottish income tax rates and bands goes to the Scottish Government; any income tax you pay on savings or dividend income according to the UK rates and bands goes to the UK Government.

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How does Scottish income tax affect how much tax I pay?

Scottish income tax took effect on 6 April 2017.

The rates and bands of Scottish income tax are on our page ‘what is Scottish income tax?

This means that Scottish taxpayers pay income tax at the following rates on their non-savings and non-dividend income in 2017/18:

  • Scottish basic rate of 20%;
  • Scottish higher rate of 40%; and
  • Scottish additional rate of 45%.

These are the same as the UK rates of income tax in 2017/18.

However, the threshold between the basic rate band and the higher rate band of income tax is £43,000 (meaning a basic rate band of 43,000-11,500= £31,500) for the non-savings and non-dividend income of Scottish taxpayers, compared to £45,000 (meaning a basic rate band of 45,000-11,500= £33,500) in the rest of the UK.

If you are a Scottish taxpayer in 2017/18, you may pay more income tax overall than you would pay if you were a taxpayer living in England, Wales or Northern Ireland with the same amount of earned income. This will normally only affect those with earned income of more than £43,000.

Example – basic rate taxpayer

Gordon lives in Stirling. He earns £15,000 in 2017/18. He pays income tax under PAYE and his tax code is S1150L.

Toby lives in Leeds. He also earns £15,000 in 2017/18. He pays income tax under PAYE and his tax code is 1150L.

The income tax payable by each of Gordon and Toby is calculated as follows:

Earned income                                   £15,000

Deduct: Personal Allowance              £11,500

Taxable income                                    £3,500

Gordon: Income tax payable at Scottish basic rate of 20%               £700

Toby: Income tax payable at UK basic rate of 20%                            £700

HMRC collect £700 income tax through the PAYE system from each of Gordon and Toby. They pass all of Gordon’s income tax to the Scottish Government. Gordon sees that he has an “S”-code indicating that he is a Scottish taxpayer. HMRC pass all of Toby’s income tax to the UK Government.

Example – higher rate taxpayer

Alejandra lives in Stirling. She earns £44,000 in 2017/18. She pays income tax under PAYE and her tax code is S1150L.

Priti lives in Leeds. She also earns £44,000 in 2017/18. She pays income tax under PAYE and her tax code is 1150L.

The income tax payable by Alejandra is calculated as follows:

Earned income                                   £44,000

Deduct: Personal Allowance              £11,500

Taxable income                                  £32,500

Alejandra: Income tax payable at Scottish basic rate of 20% (31,500)         £6,300

Income tax payable at Scottish higher rate of 40% (1,000)                              £400

Total income tax payable                     £6,700

The income tax payable by Priti is calculated as follows:

Earned income                                  £44,000

Deduct: Personal Allowance             £11,500

Taxable income                                 £32,500

Priti: Income tax payable at UK basic rate of 20% (32,500)  £6,500

Alejandra is a Scottish taxpayer and her non-savings and non-dividend income exceeds the Scottish income tax higher rate threshold of £43,000, so she has to pay some income tax at the higher rate of 40%. In contrast, Priti is a UK taxpayer, and her earned income falls entirely within the UK income tax higher rate threshold of £45,000, so she only has to pay income tax at the basic rate of 20%.

HMRC collect income tax through the PAYE system from each of Alejandra and Priti. They pass all of Alejandra’s income tax to the Scottish Government. Alejandra sees that she has an “S”-code indicating that she is a Scottish taxpayer. HMRC pass all of Priti’s income tax to the UK Government.

Note: National Insurance contributions are not affected by the Scottish income tax.

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How does Scottish income tax interact with UK income tax?

Scottish income tax took effect on 6 April 2017.

The rates and bands of Scottish income tax are on our page ‘what is Scottish income tax?

The rates and bands of UK income tax are on our ‘tax and NIC rates’ page.

If you are a Scottish taxpayer, you may have to pay income tax according to both the Scottish rates and bands and the UK rates and bands. This may happen if you have earned income (Scottish income tax) and savings and / or dividend income (UK income tax).

In 2017/18, the only difference between the UK and Scottish rates and bands relates to the higher rate threshold. This, together with reliefs such as the personal savings allowance and dividend allowance, means that this is unlikely to affect you.

Example

Stephanie is a Scottish taxpayer in 2017/18. She has earned income of £43,500 and savings income of £2,000.

She has to pay income tax as follows:

Total income (43,500 + 2,000)                        £45,500

Personal allowance                                        £11,500

Taxable income                                              £34,000

On her earned income, she has to apply Scottish income tax rates and bands:

Taxable earned income (43,500-11,500)       £32,000

31,500 at Scottish basic rate of 20%              £6,300

500 at Scottish higher rate of 40%                    £200

Total at Scottish income tax rates                  £6,500

On her savings income, she has to apply UK income tax rates and bands:

Taxable savings income                                 £2,000

Personal savings allowance (500) at 0%        0

1,000 at UK basic rate of 20%                         £200

500 at UK higher rate of 40%                          £200

Total at UK income tax rates                          £400

Total income tax payable                         £6,900

Her personal savings allowance is £500, because her total taxable income takes her into the UK higher rate band (45,500 exceeds 45,000). To work out her remaining basic rate band for the UK income tax calculation, we need to take the higher rate threshold of £45,000 and deduct Stephanie’s earned income and her personal savings allowance (45,000-43,500-500= £1,000).

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How did the Scottish rate of income tax work in 2016/17?

For the tax year 2016/17, the income tax rates payable by Scottish taxpayers on their non-savings and non-dividend income were calculated as follows:

  1. Reduce each of the main UK income tax rates by 10%, leaving
    o basic rate of 10%;
    o higher rate of 30%; and
    o additional rate of 35%.
  2. Add the single SRIT set by the Scottish Parliament (10% for 2016/17) to each of the three rates, creating
    o Scottish basic rate of 20%;
    o Scottish higher rate of 40%; and
    o Scottish additional rate of 45%.

Since the single SRIT set by the Scottish Parliament for 2016/17 was 10%, the income tax rates for Scottish taxpayers in 2016/17 were the same as for taxpayers elsewhere in the UK. The way the SRIT worked meant that the Scottish Parliament set one rate (the SRIT), and this produced three Scottish main rates of income tax.

If, in 2016/17, Scottish taxpayers had taxable savings income, such as bank interest, or taxable dividend income, this was subject to the main UK rates of income tax for those types of income.

The SRIT did not affect the tax allowances to which you were entitled, such as the personal allowance; nor did it affect the income tax bands or the thresholds, such as the threshold between the basic rate and higher rate of income tax.

In 2016/17, the amount of income tax you paid according to the reduced UK rates (shown at step 1 above) went to the UK Government; the amount of income tax you paid according to the SRIT went to the Scottish Government.

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How did the Scottish rate of income tax affect how much tax I paid for 2016/17?

The SRIT took effect on 6 April 2016 and applied during 2016/17 only.

The rate of the SRIT for 2016/17was 10%.

This means that Scottish taxpayers paid income tax at the following rates on their non-savings and non-dividend income in 2016/17:

  • Scottish basic rate of 20%;
  • Scottish higher rate of 40%; and
  • Scottish additional rate of 45%.

These were the same as the UK rates of income tax in 2016/17. If you were a Scottish taxpayer in 2016/17, you paid the same amount of income tax overall that you would have paid if you were a taxpayer living in England, Wales or Northern Ireland with the same amount of earned income.

Example

Alastair lives in Dundee. He earns £15,000 in 2016/17. He pays income tax under PAYE and his tax code is S1100L.

Cheryl lives in Newcastle. She also earns £15,000 in 2016/17. She pays income tax under PAYE and her tax code is 1100L.

The income tax payable by each of Alastair and Cheryl is calculated as follows:

Earned income                                   £15,000

Deduct: Personal Allowance              £11,000

Taxable income                                    £4,000

Alastair: Income tax payable at Scottish basic rate of 20%               £800

Cheryl: Income tax payable at UK basic rate of 20%                         £800

HMRC collect £800 income tax through the PAYE system from each of Alastair and Cheryl. For Alastair, they pass £400 to the UK Government and £400 to the Scottish Government. Alastair does not see this split on his P60 or payslip – all he sees is that he has an “s”-code indicating that he is a Scottish taxpayer. HMRC pass all of Cheryl’s income tax to the UK Government.

Note: National Insurance contributions are not affected by the introduction of SRIT.

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What types of income does the Scottish income tax (the Scottish rate of income tax in 2016/17) apply to?

Scottish income tax took effect on 6 April 2017. The SRIT applied during 2016/17 only.

Scottish income tax and SRIT apply to the same types of income.

Scottish income tax and the SRIT apply to non-savings and non-dividend income of Scottish taxpayers. So, for example, if you are a Scottish taxpayer, Scottish income tax (the SRIT in 2016/17) affects the amount of income tax you pay on:

  • employment income;
  • profits from self-employment (including from sole trades and partnerships);
  • rental profits;
  • pension income (including the state pension);
  • taxable benefits.

Scottish income tax (the SRIT in 2016/17) does not apply to savings income and dividend income. This means it does not affect the amount of income tax you pay on bank or building society interest or dividends.

Construction industry scheme (CIS)

If you are a subcontractor, the payments you receive under the CIS may be subject to deductions – 20% for registered subcontractors; 30% for subcontractors not registered with the scheme. Whether you are a Scottish taxpayer or not, contractors make deductions at the UK rate – either 20% or 30% as appropriate. If you are a Scottish taxpayer, you are liable to pay income tax at the Scottish income tax rates  on your earned income, and your final tax liability will be calculated through your self assessment tax return.

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How is the Scottish income tax (Scottish rate of income tax in 2016/17) collected?

Scottish income tax took effect on 6 April 2017. The SRIT applied during 2016/17 only.

HMRC are responsible for the collection and administration of all income tax in the UK, including Scottish income tax and the SRIT.

Scottish taxpayers pay income tax calculated according to Scottish income tax rates and bands (the SRIT in 2016/17) under the Pay As You Earn (PAYE) system or self assessment.

HMRC notify individuals who appear to be Scottish taxpayers based on the information on their systems. If you receive a notification letter, you should read it carefully and check whether or not you agree with HMRC. If you do not agree, you can appeal.

If you are within PAYE, HMRC issue a tax code to tell your employer or pension payer to deduct the correct amount of income tax. You can tell if you are paying Scottish income tax (SRIT in 2016/17), as the tax codes for Scottish taxpayers start with the letter “S”, for example, a typical tax code would be S1150L. HMRC may issue you with a PAYE coding notice, or you can check it on your personal tax account. You can also see your tax code on your payslip, form P60 or form P45.

There is information on how to check your coding notice in the ‘employed section’ of this website.

If you submit a self assessment tax return, you must check the appropriate box on the return to indicate that you are a Scottish taxpayer.

You are not able to see the split between income tax paid according to UK rates and income tax paid according to Scottish income tax rates (SRIT in 2016/17) on your payslip, form P60 or form P45. However, your annual tax summary (if you receive one) produced by HMRC shows the split. From 6 April 2017, if you do not have any savings or dividend income, you may not pay any income tax according to the UK rates and bands.

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How does the Scottish income tax (Scottish rate of income tax in 2016/17) affect my gift aid donations?

Scottish income tax took effect on 6 April 2017. The SRIT applied during 2016/17 only.

If you are a Scottish taxpayer, any donations you make under gift aid continue to benefit from tax relief.

Gift aid for charities applies at the UK basic rate (currently 20%), regardless of whether or not the donor is a Scottish taxpayer.

If you pay income tax at the higher or additional rate, you can claim back from HMRC the difference between the Scottish higher or additional rate you paid and the Scottish basic rate.

If you normally complete a self assessment tax return, tell HMRC about your gifts to charity – and claim any tax relief – by completing the appropriate section on your tax return.

If you do not complete a tax return, you may have to claim a refund directly from HMRC.

If you make a donation to charity under the payroll giving scheme, you should receive the correct tax relief automatically.

It is important to keep records of all your donations made under gift aid.

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How does the Scottish income tax (Scottish rate of income tax in 2016/17) affect my pension contributions?

Scottish income tax took effect on 6 April 2017. The SRIT applied during 2016/17 only.

If you are a Scottish taxpayer, you receive tax relief on your pension contributions according to the Scottish rates and bands (SRIT in 2016/17).

If you pay contributions to your employer’s pension scheme under net pay arrangements, you automatically receive tax relief at the Scottish rates, if appropriate.

If you pay contributions and receive tax relief at source, you do not automatically receive tax relief at the Scottish rates at present. There is a transitional period from April 2016 to April 2018 during which your pension provider is continuing to claim tax relief at the UK basic rate of income tax, even if you are a Scottish taxpayer. During the transition, HMRC are making any adjustments to tax relief through self assessment or PAYE coding. After the transition, pension providers should automatically claim tax relief at the Scottish rates where appropriate.

If you pay tax at the higher or additional rates of income tax, you can claim any further tax relief from HMRC through self assessment, by completing a tax return.

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How does the Scottish income tax (Scottish rate of income tax in 2016/17) affect income from trusts and deceased estates?

Scottish income tax took effect on 6 April 2017. The SRIT applied during 2016/17 only.

Trusts, bodies of trustees, personal representatives and deceased estates cannot be Scottish taxpayers. This means that any income they receive is chargeable at the appropriate UK rates.
If you are a Scottish taxpayer and you receive income or are entitled to income from a trust or deceased estate, you may be chargeable to income tax according to the Scottish rates and bands (SRIT in 2016/17) on this income.

We only consider UK-resident trusts below, not those resident overseas.

Bare trusts

Beneficiaries of bare trusts must include income of the trust as part of their total income. If you are a Scottish taxpayer, and you are the beneficiary of a bare trust arrangement, you are liable to Scottish income tax (the SRIT in 2016/17) on non-savings income of the bare trust.

Discretionary and accumulation trusts

Income payments from discretionary trusts are always treated as non-savings income. If you are a Scottish taxpayer and you receive income payments from a discretionary trust, you are liable to Scottish income tax (the SRIT in 2016/17) on this income. The income is treated as being received net of tax at the trust rate – so there is a tax credit of 45%.

Deceased estates and interest in possession trusts

You can receive either savings or non-savings income from a deceased estate or an interest in possession trust. In both cases, you receive the income net of UK basic rate income tax (20%).

If you are a Scottish taxpayer and you receive savings income from a deceased estate or interest in possession trust, you are liable to UK main rates of income tax on this income.

If you are a Scottish taxpayer and you receive non-savings income from a deceased estate or interest in possession trust, you are liable to pay tax according to the Scottish rates (the SRIT in 2016/17) on this income.

Settlor interested trusts
These are trusts where the settlor or certain family members can benefit from the trust. The trustees must pay tax on income of the trust at the appropriate rate.

The settlor is liable to income tax on the income and receives a tax credit for the tax paid by the trustees. If the settlor is a Scottish taxpayer, they will be liable to pay tax according to the Scottish rates and bands (the SRIT in 2016/17).

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