A quick summary of how the Scottish income tax rate has diverged from the UK rate each year since power was devolved to set Scotland's own rate

Since April 2016, the Scottish Government has exercised its power under the Scotland Act 2012 to set its own rate of tax on the income of a Scottish taxpayer, and from 6 April 2016, Scottish taxpayers “benefited” from the lowest income tax rate in the UK, of 10%. The inverted commas have been used because in real terms, no one would actually have noticed any difference! The UK income tax rates of 20, 40 and 45% set by Westminster had been reduced by an equivalent 10% for Scottish taxpayers, so there was no real increase or decrease overall, certainly as regards the 2016-17 tax year.

The following tax year was slightly different however, and our MPs, dipping their legislative toesies deeper into the water, then made the historic decision to set separate Scottish income tax rates and bands for the first time. Tax rates were frozen, as were income tax bands, so whereas the rest of the UK saw an increased basic rate band limit of £45,000, in Scotland it remained at £43,000.

Whilst it might seem that a freeze is often a good thing, where the freeze is on allowances or tax bands then, unfortunately, it isn’t.

It would not have made any difference to anyone paying tax at the lower or basic rates in 2017-18, but it did mean that higher rate taxpayers in Scotland would hit the threshold – and therefore start paying the higher rate of tax – sooner than a taxpayer in the rest of the UK. So Scottish higher rate taxpayers began paying more tax than their English counterparts, to the tune of up to £400 (being the difference between the thresholds, at 20%) from 6 April 2017.

However, as if differing tax bands were not enough, our politicians then decided that they’d quite like to see what getting their whole foot wet felt like (Lord help us if they ever decide to go skinny-dipping!) and, with the passing of the Scottish Budget in February 2018, brought in five tax bands, as opposed to the three that the rest of the UK has to get by on. These are as follows:

  Rate (%) Banding
Starter rate 19 £11,851-13,850
Basic rate 20 £13,851-24,000
Intermediate rate 21 £24,001-43,430
Higher rate 41 £43,431-150,000
Top rate 46 £150,001+


Scottish tax rates will, for the first time ever, then, be appreciably different to those in the rest of the UK. As to the impact, well, according to the Scottish Government, compared to elsewhere in the UK, those earning less than £26,000 will pay slightly less income tax next year than if they lived elsewhere in the UK. Compared to 2017-18, for a given level of income, every Scottish taxpayer earning less than £33,000 in 2018-19 will pay less income tax than they did in the previous year; overall, 70% of Scottish income tax payers will pay less tax in 2018-19 compared to the previous year and, when considering current basic rate taxpayers, 81% will pay less (statistics from Scottish Government website).

However, whilst there is no doubt that many Scottish taxpayers will be better off than they were before, there is no getting away from the fact that a significant number will be worse off, not only in terms of their position in the previous year but also as regards a similar earning individual elsewhere in the UK.

Gird your loins, it’s all happening in a pay packet near you from 6 April 2018…

The Author
Lesley Rance is a tax adviser with the Private Client department at Miller Hendry, Perth
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