Scottish government shakes up income tax bands with new 46% top rate

14 December 2017

The Scottish government is to introduce two new income tax brackets while increasing its top tax rate to 46p in the pound.

The Scottish finance secretary, Derek Mackay, made the announcement in his Scottish Budget statement today. He says despite introducing some higher bands, nobody earning less than £33,000 a year will pay more in income tax. This will cover about 70% of taxpayers in Scotland.

At present, Scottish taxpayers pay the following income tax:

  • Earnings up to £11,500 – tax free (personal allowance)
  • Earnings between £11,501 and £43,000 – taxed at 20% (basic rate)
  • Earnings between £43,001 to £150,000 – taxed at 40% (higher rate)
  • Earnings of £150,001 or more – taxed at 45% (additional rate)

But from 6 April 2018 – the start of the new tax year – this will change to the following:

  • Earnings between £11,851 and £13,850 – taxed at 19% (starter rate)
  • Earnings between £13,851 and £24,000 – taxed at 20% (basic rate)
  • Earnings between £24,001 and £44,273 – taxed at 21% (intermediate rate)
  • Earnings between £44,274 and £150,000 – taxed at 41% (higher rate)
  • Earnings of £150,001 or more– taxed at 46% (additional rate)

Mr Mackay told the Scottish parliament: “Having carefully considered contributions from the public, civic society and the business community, I have decided to reform Scotland’s income tax system.

“Using the limited powers available to us, the decisions I have reached will make our income tax system fairer.

“They will safeguard those on low incomes and overall when coupled with our spending decisions will protect and grow our economy.”

Nathan Long, senior pension analyst at Hargreaves Lansdown, says the new tax rates will mean Scottish taxpayers have a bigger incentive to save in a pension than the rest of the UK.

He comments: “All of a sudden the incentive to save for retirement is now greater in Scotland for those earning over £24,000 and those earning between £11,850 and £13,850 than the rest of the UK.

“We could see canny Scots deferring their pension contributions until the new tax year in order to benefit. Of course, this relies on the legislation being passed which will not be known until February. With only basic rate tax relief claimed automatically by pension providers there will be huge numbers of Scots forced into filling in a tax return.”

Full details of what residents of England, Northern Ireland and Wales will pay in the 2018/19 tax year were announced in the Autumn Budget last month. The top rate of tax will remain at 45% for residents in those three nations.

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