What is Scottish income tax?

Back to results

A Scottish rate of income tax was introduced as part of the devolved powers transferred to the Scottish Parliament in the Scotland Act 2012. The Scotland Act 2016 further built on this by allowing the Scottish Government to set all income tax rates and bands (apart from the personal allowance) from the 2017/18 tax year.

The Scottish Government have chosen to use these powers for the tax year 2018/19 and have set five tax rates. You can find out more by visiting https://news.gov.scot/news/scottish-income-tax-1(Opens new window)

Scottish taxpayers pay the Scottish rate on their earnings, pensions and most other taxable income, but pay the same as the rest of the UK on dividends and savings interest.

Below you can find some answers to frequently asked questions.

This information is based on our understanding of current, taxation law and HMRC practice, which may change.

Go to 'More questions for employers'

General questions

HM Revenue & Customs (HMRC) is responsible for identifying who is a Scottish taxpayer.

For most people, if your primary residence is in Scotland, or if you live in Scotland for more than half the year, you'll be considered a Scottish taxpayer.

For more information visit www.hmrc.gov.uk/scottish-rate-income-tax(Opens new window)

If you're a Scottish taxpayer and have employment or pension income taxed under Pay As You Earn (PAYE), you’ll have an ‘S’ prefix added to your tax code.

You should let HMRC know your new address details straightaway. This can be done by visiting www.gov.uk/tell-hmrc-change-of-details(Opens new window)

They'll then review your tax position so you pay the correct amount of tax.

Any changes to rates of income tax for the next financial year are announced as part of the autumn statements by the UK and Scottish Governments.

UK (excluding Scotland) rates for 2018/19 will remain at 20%, 40% and 45%.

However, for the tax year 2018/19 the Scottish Government will introduce two new tax bands, and Scottish payers will pay tax rates of 19%, 20%, 21%, 41% and 46%. You can find out more by visiting https://news.gov.scot/news/scottish-income-tax-1(Opens new window)

The personal allowance is set by the UK Government each year, and the Scottish Government currently has no powers to change this.

Taking benefits

We currently use the tax code supplied by HMRC. Until we receive this, we use the UK emergency tax code, according to HMRC guidance.

This won’t change for Scottish taxpayers in the tax year 2018/19. If HMRC tells us you’re a Scottish taxpayer, we’ll deduct tax at Scottish rates.

We currently use the tax code supplied by HMRC. Until we receive this, we use the UK emergency tax code, according to HMRC guidance.

This won’t change for Scottish taxpayers in the tax year 2018/19. If HMRC tells us you’re a Scottish taxpayer, we’ll deduct tax at Scottish rates.

We'll continue to apply the UK basic rate of income tax to payments from uncrystallised funds, according to HMRC guidance. If the amount of tax you pay is incorrect, HMRC will contact you at the end of the tax year.

HMRC will continue to be responsible for making sure everyone pays the correct amount of income tax.

If you think you're paying the incorrect rate of tax because you've been incorrectly classed as a Scottish (or UK) taxpayer, you should contact HMRC directly.

Tax relief on pension contributions

We currently apply basic rate tax relief on any personal contributions you make into personal pension plans and this will continue to be the case for UK and Scottish taxpayers in the 2018/19 tax year.

As basic rate is 20% in Scotland and the remainder of the UK, we’ll continue to apply tax relief on your contributions at this rate.

Scottish starter rate (19%) taxpayers will therefore benefit from an additional 1% tax relief on their contributions and no further action will be needed. However Scottish intermediate rate (21%) taxpayers can contact HMRC to reclaim the additional tax relief in the same way as higher and additional/top rate taxpayers – via yearly tax return or tax code adjustment.

If you're a member of an occupational scheme, any personal contributions are deducted gross from your gross pay before income tax is calculated. You’ll therefore automatically receive tax relief at your marginal rate and there’ll be no change to this process in 2018/19. 

The value of any tax relief depends on your individual circumstances.

More questions for employers

As the government has confirmed that tax relief at source will continue to be added at 20% on personal contributions made to personal pensions for the tax year 2018/19, you should continue to deduct and pay contributions in the same way as before – for employees who are both Scottish and UK taxpayers.

Employees who pay the Scottish starter rate (19%) will therefore benefit from an additional 1% tax relief on their contributions and they won’t need to do anything else. However employees who are Scottish intermediate rate (21%) taxpayers can contact HMRC to reclaim the additional tax relief in the same way as higher and additional/top rate taxpayers – via yearly tax return or tax code adjustment.

For occupational schemes that use the net pay arrangement, personal contributions are taken gross from gross pay before tax is calculated. Your employees will therefore continue to receive tax relief at the correct Scottish or UK rate and this won’t change for the 2018/19 tax year.

As 20% basic rate tax relief will apply in 2018/19 to employee contributions made to relief at source schemes, the method for calculating your employees’ minimum contributions to such schemes will remain the same for UK and Scottish taxpayers. So, if your workplace pension is a relief at source scheme, there’ll be no change to how you calculate and deduct personal contributions from your employees’ pay.

Salary sacrifice quotes should be run using the tax and National Insurance rates for the tax year in which the quote is being produced.

Our online salary sacrifice calculators are updated each tax year to take account of the correct tax and National Insurance rates, and for the tax year 2018/19 will include the new Scottish tax bands and rates.