How does Scottish income tax work?

What is Scottish income tax?

Scottish income tax has applied since 6 April 2017.

Scottish income tax 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, normally 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 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 2023/24, it has chosen to continue to have five income tax rates and bands, with a starter rate (19%), basic rate (20%), intermediate rate (21%), higher rate (42%) and top rate (47%). This structure was introduced with effect from 6 April 2018. The higher rate threshold is £43,662, compared to £50,270 in the rest of the UK, meaning that when taken together, the starter, basic and intermediate bands of Scottish income tax in 2023/24 equal £31,092 (£43,662 less the £12,570 personal allowance).

For 2022/23, the threshold between the intermediate rate band and the higher rate band was set at £43,662 for those entitled to the UK personal allowance, compared to £50,270 in the rest of the UK. The starter, basic and intermediate rate bands together for Scottish income tax in 2022/23 were therefore £31,092 (£43,662 less the £12,570 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. We explain how it affects the marriage allowance below.

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.

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 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 2023/24:

• Scottish starter rate of 19%;
• Scottish basic rate of 20%;
• Scottish intermediate rate of 21%;
• Scottish higher rate of 42%; and
• Scottish top rate of 47%.

If you are a Scottish taxpayer in 2023/24, you may pay a different amount of 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. If you have earned income of less than around £27,850, you will probably pay less income tax than you would if you lived in England, Wales or Northern Ireland. If you have earned income of more than around £27,850, you will probably pay more income tax than you would if you lived in England, Wales or Northern Ireland.

Example: lower income taxpayer

Gordon lives in Stirling. He earns £15,000 in 2023/24. He pays income tax under PAYE and his tax code is S1257L.

Toby lives in Leeds. He also earns £15,000 in 2023/24. He pays income tax under PAYE and his tax code is 1257L.

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

Earned income	£15,000
Deduct: Personal Allowance	£(12,570)
Income on which tax is charged	£2,430

 

Gordon: Income tax payable at Scottish starter rate of 19% (£2,162)	£410.78
Scottish basic rate of 20% (on the remaining £268)	£53.60
Total Scottish income tax	£464.38
Toby: Income tax payable at UK basic rate of 20%	£486

HMRC collect £464.38 income tax through the PAYE system from Gordon and £486 income tax through the PAYE system from 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 income taxpayer

Alejandra lives in Stirling. She earns £48,000 in 2023/24. She pays income tax under PAYE and her tax code is S1257L.

Priti lives in Leeds. She also earns £48,000 in 2023/24. She pays income tax under PAYE and her tax code is 1257L.

The income tax payable by Alejandra is calculated as follows:

Earned income	£48,000
Deduct: Personal Allowance	£(12,570)
Income on which tax is charged	£35,430

 

Alejandra: Income tax payable at Scottish starter rate of 19% (on £2,162)	£410.78
Scottish basic rate of 20% (on £10,956)	£2,191.20
Scottish intermediate rate of 21% (on £17,974)	£3,774.54
Scottish higher rate of 42% (on the remaining £4,338)	£1,821.96
Total Scottish income tax payable	£8,198.48

The income tax payable by Priti is calculated as follows:

Earned income	£48,000
Deduct: Personal Allowance	£(12,570)
Income on which tax is charged	£35,430
Priti: Income tax payable at UK basic rate of 20% (£35,430)	£7,086

Alejandra is a Scottish taxpayer and her non-savings and non-dividend income exceeds the Scottish income tax higher rate threshold of £43,662, so she has to pay some income tax at the higher rate of 42%. Moreover, due to the five-band structure of Scottish income tax, she has to consider four rates and bands of tax. In contrast, Priti is a UK taxpayer, and her earned income falls entirely within the UK income tax higher rate threshold of £50,270, 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 Scottish income tax.

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 What is Scottish income tax?.

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

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 related to the higher rate threshold. This, together with reliefs such as the personal savings allowance and dividend allowance, meant that this was unlikely to affect you.

Since 2018/19, when the five-band structure of Scottish income tax was introduced, this is far more likely to affect you.

Example

Stephanie is a Scottish taxpayer in 2023/24. She has earned income of £18,500 and savings income of £2,000.

She has to pay income tax as follows:

Total income (£18,500 + £2,000)	£20,500
Personal allowance	£(12,570)
Income on which tax is charged	£7,930

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

Taxable earned income (£18,500 - £12,570)	£5,930
£2,162 at Scottish starter rate of 19%	£410.78
£3,768 at Scottish basic rate of 20%	£753.60
Total at Scottish income tax rates	£1,164.38

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

Taxable savings income	£2,000
Personal savings allowance (£1,000) at 0%	0
£1,000 at UK basic rate of 20%	£200
Total at UK income tax rates	£200
Total income tax payable	£1,364.38

Her personal savings allowance is £1,000, because her total taxable income falls entirely within the UK basic rate band (£20,500 is less than £50,270). To work out her remaining basic rate band for the UK income tax calculation, we need to take the higher rate threshold of £50,270 and deduct Stephanie’s earned income and her personal savings allowance (£50,270 - £18,500 - £1,000 = £30,770).

What types of income does the Scottish income tax apply to?

Scottish income tax took effect on 6 April 2017.

Scottish income tax applies to non-savings and non-dividend income of Scottish taxpayers. So, for example, if you are a Scottish taxpayer, Scottish income tax 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 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, including these CIS payments, and your final tax liability will be calculated through your Self Assessment tax return.

For more information on the CIS, see our page What is the Construction Industry Scheme (CIS)?

How is Scottish income tax collected?

Scottish income tax took effect on 6 April 2017.

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

Scottish taxpayers pay income tax calculated according to Scottish income tax rates and bands 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, as the tax codes for Scottish taxpayers start with the letter “S”, for example, a typical tax code would be S1257L. 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 employment section.

If you submit a Self Assessment tax return, note there is no box on the return itself to indicate that you are a Scottish taxpayer. It is important to ensure that your address information on the tax return is correct. If you complete the return using HMRC’s online software, HMRC will indicate if they think you are a Scottish taxpayer, and the tax calculation will reflect whether or not HMRC view you as a Scottish taxpayer. If you file your return on paper and you ask HMRC to calculate your tax, then HMRC will so do according to whether they believe you are Scottish taxpayer or not based on their records. You may wish to clarify your Scottish taxpayer status in a note to your tax return, if you have reason to believe HMRC’s records are incorrect on this point.

If you receive a Self Assessment tax calculation that you disagree with, because you believe your Scottish taxpayer status is incorrect, you can appeal. There is information on how to appeal on the page tax appeals.

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 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.

⚠️ You should check carefully any notices or calculations you receive from HMRC, to ensure they have used the correct tax rates and bands. If you disagree, or are not sure that they have your taxpayer status correct, contact HMRC immediately.

How does the marriage allowance work for Scottish taxpayers?

Scottish income tax took effect on 6 April 2017.

The marriage allowance allows eligible taxpayers to transfer 10% of their personal allowance to their spouse or civil partner. This means the recipient of the marriage allowance benefits from a tax reducer, worked out as 20% of the amount of allowance transferred.

Scottish taxpayers who only pay tax at the starter, basic and intermediate rates of Scottish income tax (and if relevant the basic rate of UK income tax on savings income) are eligible for the marriage allowance. That is, Scottish taxpayers are eligible, provided they do not pay income tax at the higher or top rates of Scottish income tax and/or the higher or additional rates of UK income tax (if relevant).

Note that if a Scottish taxpayer pays some Scottish income tax at the intermediate rate of Scottish income tax (21%), the tax reducer provided by the marriage allowance is still only 20%.

How does Scottish income tax affect my Gift Aid donations?

Scottish income tax took effect on 6 April 2017.

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. This means that the charity claims tax relief at 20% from HMRC on any donations you make under Gift Aid, even if you only pay tax at the Scottish starter rate of 19%. As with any Gift Aid donation, if you do not actually pay enough total tax (irrespective of the rate) to cover the tax relief that the charity claims, HMRC may ask you to pay the difference. There is more information on the page Giving to charity.

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

This means that if you pay tax at the Scottish intermediate rate of 21%, you can get an extra 1% tax relief.

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.

How does Scottish income tax affect my pension contributions?

Scottish income tax took effect on 6 April 2017.

If you are a Scottish taxpayer, you receive tax relief on your pension contributions according to the Scottish rates and bands.

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.

For 2023/24 pension providers who operate relief at source arrangements will give tax relief at the rate of 20% on pension contributions made by Scottish taxpayers.

If you pay tax at a rate higher than the Scottish basic rate of income tax, you can claim any further tax relief from HMRC through Self Assessment by completing a tax return or by contacting HMRC to make an adjustment to your PAYE code.

This means that if you pay tax at the Scottish intermediate rate of 21%, you can get an extra 1% tax relief.

If you are a non-taxpayer, or only pay income tax at the Scottish starter rate of 19%, you will also get relief at source of 20%. HMRC will not seek to recover the extra tax relief that you have received, so you do not need to contact HMRC about this.

How does Scottish income tax affect income from trusts and deceased estates?

Scottish income tax took effect on 6 April 2017.

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 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 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 on this income. The income is treated as being received net of tax at the UK 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 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.

How are social security pension lump sums taxed for Scottish taxpayers?

Scottish income tax took effect on 6 April 2017.

Social security pension lump sums, which you may receive if you have deferred your state pension, count as non-savings and non-dividend income. Scottish taxpayers who receive social security pension lump sums are liable to income tax at Scottish income tax rates and bands.

The Department for Work and Pensions (DWP) pays social security lump sums. It deducts income tax at UK rates and bands. This means the DWP deducts income tax at either 20% or 40% rather than the Scottish rate at which you are liable. So if you are a Scottish taxpayer, you are likely to need to check that you have paid the correct amount of tax on your lump sum. Unless the correct rate of deduction is 20% (the Scottish basic rate of income tax), you are likely to have paid the wrong amount of tax. You will either have an underpayment or an overpayment of tax. Normally HMRC will reconcile the position after the end of the tax year, and they will send you a repayment or ask you to pay any additional tax that you owe.

How does finance cost relief for residential landlords work for Scottish taxpayers?

Scottish income tax took effect on 6 April 2017.

From April 2017, tax relief on interest and other finance costs is restricted in relation to residential properties. We explain how this works on the page Renting out a property.

The tax reduction applies at the rate of 20% for Scottish taxpayers, which is the same rate applicable to landlords across the UK.