On April 6th, new tax bands come in. People living in Scotland pay a different rate of income tax to people living in England, Wales or Northern Ireland. Who pays Scottish income tax and what could it mean for your pension?
Scottish income tax rates
Scotland has been able to set its own income tax since April 2016. In April 2018, the Scottish government introduced new tax bands and rates. These have changed for the tax year 2019 – 20. Here are the bands and rates from April 6th 2019.
SAVVY TIP: You lose your personal allowance at a rate of £1 for every £2 you earn over £100,000. That means if your income is over £123,000, you’re not entitled to the personal allowance.
Scottish income tax rates
From April 6th, these are the income tax bands and rates in Scotland. You pay the Scottish rates of income tax on a range of income, including your wages and pension payments.
- Personal allowance: This will rise from £11,850 to £12,500 a year. This is the part of your earnings or income that you don’t pay tax on. This is the same as the personal allowance in England, Wales and Northern Ireland.
- Starter rate: If you earn between £12,501 and £14,549 a year, you pay tax at 19% on those earnings.
- Basic rate: If you earn between £14,550 and £24,944 a year, you pay tax at 20% on those earnings.
- Intermediate rate: If you earn between £24,945 and £43,430 a year, you pay tax at 21% on those earnings.
- Higher rate: If you earn between £43,431 and £150,000 a year, you pay tax at 41% on those earnings.
- Top rate: If you earn more that £150,001 a year, you pay tax at 46% on those earnings.
Who pays Scottish income tax?
In very broad terms, if you live in Scotland. In tax terms, it’s where your main home is. It doesn’t matter whether you own the property, rent it or live in it rent free. According to the Gov.uk website, that is not necessarily the same as the place you spend most of your time.
Your main home may be the home where you spend less time if that’s where:
- Most of your possessions are.
- Your family lives, if you’re married or in a civil partnership.
- You’re registered for things like your bank account, GP or car insurance.
- You’re a member of clubs or societies.
SAVVY TIP: If you move home halfway through the tax year, and either move into or out of Scotland, you pay Scottish income tax if you’ve lived in Scotland for more than half the year. You have to tell HM Revenue and Customs if you move to or out of Scotland or you may pay the wrong rate of income tax.
HM Revenue and Customs has some detailed information on How to work out if you’ll pay Scottish income tax on the Gov.uk website.
What do you pay Scottish income tax on?
You pay the Scottish income tax on your wages and some other earnings, but not all income you may receive. You pay Scottish income tax on:
- Money you earn from employment.
- Money you earn from being self-employed.
- Pensions, including workplace pensions and the state pension.
- State benefits that are taxable.
- Rental income (unless you’re renting a room to a lodger and use the rent-a-room scheme).
- Income from a trust.
- Benefits you get from your job (such as a company car, etc.).
What don’t you pay Scottish income tax on?
You don’t pay Scottish income tax on savings interest or dividend income.
Scottish income tax and your pension
If you pay into a pension, you get tax relief on your pension contributions, up to certain limits each year. Tax relief means that the government pays some of the tax you would have paid, into your pension. The Scottish income tax rates apply to pensions tax relief. That means someone in Scotland who pays higher tax than elsewhere in the UK can also claim higher tax relief. However, people on the starter rate of tax don’t lose out. Here’s how it works and what you pay:
- If you don’t pay tax: As is the case in the rest of the UK, if you don’t pay tax you can still contribute up to £2,880 a year into a pension. You will receive tax relief at 20%, which will effectively make the contributions worth £3,600.
- If you pay tax at the starter rate: If you earn between £12,501 and £14,549 a year, you pay tax at 19% on those earnings. However, if you pay money into your pension, you still receive tax relief at 20%.
- Basic rate: You pay tax at 20% on your earnings between £14,550 and £24,944. You get tax relief at the same rate as the rest of the UK – 20%.
- Intermediate rate: You pay tax at 21% on earnings between £24,945 and £43,430. You are able to claim tax relief at 21% on your pension contributions. However, you will only get tax relief at 20% and will need to claim the extra 1%.
- Higher rate: You pay tax at 41% on earnings between between £43,431 and £150,000. This threshold is lower than in the rest of the UK and the rate of tax is 1p higher than the higher rate tax rate elsewhere. You will need to claim this extra tax relief on your self assessment tax return.
- Top rate: If you earn more than £150,001 a year, you’ll pay tax at 46% on those earnings. The threshold is the same, but in the rest of the UK the rate of tax is 45%.
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