Scottish income tax changes and what they mean
Since 6 April, there have been a number of key changes to Scottish income tax. Here are the main income tax changes and how they could impact your finances if you’re a Scottish taxpayer.
Last Updated: 12 April 2024
We hope you find this article helpful, but it’s not personal advice. Tax rules can change, and benefits will depend on your circumstances. If you’re not sure what’s right for you, please contact our financial advice team.
What’s changed? – the key tax takeaways
- New ‘advanced’ income tax band introduced, set at 45% for earnings between £75,000 - £125,140
- Top rate taxpayers to absorb 1% hike from 47% to 48% on earnings above £125,140
- No changes to starter, basic, intermediate and higher income tax rates
- Starter and basic rate band thresholds rose in line with inflation
- Thresholds for the higher and top rates of tax have been frozen
What could these changes mean for you
It’s estimated that over a third of adults living in Scotland won’t be impacted by the new tax changes. And over half of Scottish taxpayers will carry on paying less income tax this tax year (2024/25) than if they lived elsewhere in the UK.
It’s only taxpayers earning significantly above median taxpayer income in Scotland (£28,200) that will pay more income tax this tax year.
So, what does this look like?
Around 154,000 people, the highest earning 5% of Scottish taxpayers, will have to fork out up to £1,881 more in tax, thanks to the new 45% advanced rate band.
Scottish taxpayers who earn £50,000 will pay £1,542 a year more than they would if they lived in another part of the UK. And any Scottish taxpayers earning £150,000 will pay £6,000 more.
New Scottish income tax rates and bands
| 2023/24 | 2024/25 | |||
|---|---|---|---|---|
| Band | Rate | Band | Rate | |
| Starter | £12,571* - £14,732 | 19% | £12,571 - £14,876 | 19% |
| Basic | £14,733 - £25,688 | 20% | £14,877 - £26,561 | 20% |
| Intermediate | £25,689 - £43,662 | 21% | £26,562 - £43,662 | 21% |
| Higher | £43,663 - £125,140** | 42% | £43,663 - £75,000 | 42% |
| Advanced | N/A | N/A | £75,001 - £125,140 | 45% |
| Top | Above £125,140 | 47% | Above £125,140 | 48% |
*Assumes individuals are in receipt of the standard personal allowance.
**Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.
Source: Scottish Budget 2024-25, Scottish Government, www.gov.scot, 19/12/2023.
How could you cut your tax bill?
If you’re set to pay more tax this year following these changes, it’s worth thinking about ways you can reduce your tax bill.
Here are three tips that could help.
1. Pay into ISAs
The government offers the chance to shelter up to £20,000 from UK income and capital gains tax each tax year in ISAs in the form of your ISA allowance.
It doesn’t just shelter you from tax right now, but also shelters you from more tightening that might be in store in the next few years.
If you‘re aged 39 or under, you can also open a Lifetime ISA (LISA). In a LISA you can use up to £4,000 of your ISA allowance per tax year and receive a 25% bonus from the government (up to £1,000).
You can withdraw money from your LISA to buy your first home or after you turn 60 tax free. You can access the money at other times if you need to, but this comes with a 25% withdrawal charge, so you could get back less than you put in. Be aware, savings outside a pension (like in a LISA) could affect your entitlement to means-tested state benefits.
2. Benefit from pension tax relief
Most people under 75, can make personal pension contributions of up to £60,000 and benefit from 20% tax relief (even if you pay tax at a rate below this rate). If you pay tax at a higher rate, you can claim back any higher rates of relief through your tax return.
Tax relief on personal contributions are limited by your earnings (or £3,600, if this is greater). So even if you’re a non-taxpayer, you can pay in up to £2,880 each year, and the government would add 20% (£720).
The Scottish income tax changes also impact how much tax relief you can claim back when you add money to a pension. Those who pay tax at the new advanced or top rate, can now claim back up to 45% or 48% pension tax relief.
Remember, you have to pay sufficient tax at the higher rates to benefit from that relief. Once you reach the age where you can access your pension (currently 55, increasing to 57 from 2028), you can usually take up to 25% from your pension tax free.
Explore our Self-Invested Personal Pension (SIPP)
3. Make the most of spouse exemptions
You might have already used your allowances, but have additional income producing assets or assets with capital gains.
If you have, they can generally be passed between spouses (or civil partners) without triggering a tax bill.
That means, both individuals can make use of their respective allowances and potentially reduce their total tax bill.
Do you need financial advice?
If you need help or support understanding how the proposed Scottish tax changes impact you, or what you can do about it, a financial adviser could help.
How one of our advisers saved a clients £14,000 in tax
They can review any existing financial plans you have in place, or create a new one unique to your circumstances, to help you prepare for a better future.
Talk to our advisory team to find out what benefit you might see from taking advice, and the costs involved. If you decide to go ahead, they'll put you in touch with an adviser.
