Save on tax by moving from Scotland to England – and back again

Published by Moira O'Neill on 18 December 2017.
Last updated on 18 December 2017

Save on tax by moving from Scotland to England – and back again

The Scottish Parliament has proposed new tax rates, which if passed in February will be introduced in April.

These tax differences join an increasing number of financial variations between England and Scotland, including everything from university tuition fees to long term care.

The income tax picture favours England on the whole.

When you’re starting out, and earning £11,850-£13,850, you would be better off in Scotland, where you would pay a top rate of 19%.

But once you are making £24,000, you would be better off in England, where you would start paying less tax. When you are making £44,273-£46,350, the difference is most striking, as in England your top rate of tax is 20% rather than 41% north of the border.

At retirement, you could pick the location with the lowest rate of tax for your income bracket – which for anyone with an income over £24,000 would be England.

Income tax rates in England and Scotland

Pay level (2017/18) England Scotland
Up to £11,850 0% 0%
£11,850-£13,850 20% 19%
£13,850 to £24,000 20% 20%
£24,000 to £44,273 20% 21%
£44,273 to £46,350 20% 41%
£46,350 to £150,000 40% 41%
Over £150,000 45% 46%

However, it’s not just tax to consider as part of the financial picture.

When your children reach their teenage years, you would be better off in Scotland, where if you can put in three years of residency before the ‘qualifying date’, they will receive free university education. Depending on your household income, they may also qualify for a bursary to help pay their living costs.

Retirees may consider that in Scotland prescriptions are free. The current prescription charge in England is £8.60 per item, and applies to anyone over the age of 16 (or 18 if in full time education) and under the age of 60 – unless they are exempt.

Later in retirement, if you are likely to need care, you may be better off in Scotland.

At the moment, if you are applying for care in a residential home in England, if you have over £23,250 (or less than this but considerable income), you will have to pay for care yourself. The value of your home is included – unless one of a specified group of people live there.

In Scotland, if you need care and are over the age of 65, if you have assets of over £26,500, you will still receive a payment for personal and nursing care, but will have to pay all your ‘hotel costs’.

Is it worth relocating?

Sarah Coles, personal finance analyst, Hargreaves Lansdown says: “At first sight tax tourism would seem attractive for people in certain situations – such as for very high earners, people with a large number of children who are very close in age and plan to go to university, or those who have significant assets and expect to spend a long time in care.”

“In practical terms, however, for the vast majority of people, the tax differences are marginal, and they are vastly outweighed by the hassle and expense of moving around. You are also at the mercy of changing policy. It makes far more sense to look at the tax savings available regardless of where you live. Sensible use of Isas and pensions throughout your life can save you tens of thousands of pounds in tax, without the need to continually uproot your family.”

“However, if we see the systems continue to diverge, then the differences could become much less marginal, and tax tourism could become a genuine possibility for some people.”

 

Read more about paying less tax n Moneywise

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How does this work if I am

How does this work if I am employed by a Scottish company but working in England do I pay Scottish or English tax and visa versa?

The definition of a Scottish

The definition of a Scottish taxpayer is based around where an individual lives in the course of a tax year. You pay Scottish Income Tax If you move to Scotland and live there for more than half the tax year.

For most individuals, the question of whether or not they are a Scottish taxpayer is straightforward – either, they live in Scotland and are a Scottish taxpayer; or they live elsewhere in the UK and are not a Scottish taxpayer.

A further tax difference

A further tax difference which could be very significant, is "stamp duty". If you are moving house anyway, e.g. at retirement, then this could easily tip the balance in favour of England. In Scotland, stamp duty is vastly higher with 10% starting at £325k, as opposed to England where it is still a ridiculously high 5%, with 10% starting at £925k.