Scotland has more tax bands than the rest of the UK and different rates too. In the Scottish budget, the government confirmed plans to hike income tax in a bid to raise additional revenue to support Scotland’s NHS and other public services.
This means that Scottish taxpayers earning more than £43,662, will face paying more tax from April.
This article isn’t personal advice. If you’re not sure what’s right for you, ask for financial advice. Pension, ISA, and tax rules can change, and benefits depend on your circumstances. We aren’t tax experts so if you need help with complex taxation, speak to an accountant.
How much more tax will I pay?
There are five Scottish tax bands in total. The less you earn, the less tax you’ll pay.
For anyone who pays higher or top rate tax, the tax rates and bands will change from 6 April 2023.
| Tax bands | Rates 2022/23 | Income 2022/23 | Rates 2023/24 | Income 2023/24 |
|---|---|---|---|---|
| Personal allowance | 0% | Up to £12,570 | No change | No change |
| Starter rate | 19% | £12,571-£14,732 | No change | No change |
| Basic rate | 20% | £14,733-£25,688 | No change | No change |
| Intermediate rate | 21% | £25,689-£43,662 | No change | No change |
| Higher rate | 41% | £43,663-£150,000 | 42% (1% change) | £43,663-£125,140 |
| Top rate | 46% | Above £150,000 | 47% (1% change) | Above £125,140 |
The table sets out the position for individuals with a standard personal allowance (£12,570).
But how will this impact your earnings? You won’t really start to feel the pinch unless you’re earning £45,000 or more.
The highest earners will take the biggest hit. For example, the take home pay of someone earning £160,000 will be £2,532 less across the 2023/24 tax year.
| Earnings | Yearly take-home pay |
|---|---|
| £45,000 | £13 less |
| £50,000 | £63 less |
| £60,000 | £163 less |
| £100,000 | £563 less |
| £120,000 | £863 less |
| £150,000 | £2,432 less |
| £160,000 | £2,532 less |
These calculations assume someone is entitled to the full personal allowance, except where it is reduced by £1 for every £2 they earn over £100,000 (becoming £0 at £125,140).
3 tips to pay less income tax
1. Consider adding money to your pension
Putting money in your pension could considerably reduce the amount of tax you pay. You can potentially lower your income tax liability by paying into a workplace or personal pension (like a Self-Invested Personal Pension).
When you pay into your pension, some of the money that would’ve gone to the government as tax goes towards your pension instead. This is known as pension tax relief.
Any money in a pension is also free from UK income and capital gains tax. When you take money out (allowed from age 55, rising to 57 in 2028), you can usually take up to 25% as tax free cash. The remainder is taxed as income.
Your guide to pension tax relief
How much can I pay into a pension and how much tax relief will I get?
If you’re a UK resident under 75, you’ll automatically get 20% basic-rate tax relief added to anything you pay into your personal pension. Even if you don’t pay tax, or pay tax below the basic rate, you’ll be entitled to tax relief of 20%.
Each tax year you can usually pay in as much as you earn, up to £40,000, across all your pensions and get tax relief. If you earn £3,600 or less (including non-earners) you can still pay in up to £3,600, including tax relief.
If you’re a higher- or top-rate taxpayer, the tax benefits are even more appealing. You can currently claim back up to a further 26% in tax relief through your tax return. From 6 April 2023, you can claim back up to a further 27%.
If you’ve already taken money from your pension, or you’re a high earner, you might have a lower annual allowance.
More on paying into a pension, including lower allowances
To find out how much tax relief you could get, try our tax relief calculator. All you need to do is confirm how much you earn a year and how much you’d like to pay into your pension. You’ll need to select that you pay income tax in Scotland too, if that’s the case.
2. Use your ISA allowance
Individual Savings Accounts (ISAs) also offer a tax-efficient way to save and invest for the future.
You can pay in up to £20,000 each tax year. If your investments grow, you won’t have to pay capital gains tax. And you won’t pay UK income tax on any income either.
There’s no tax to pay on ISA withdrawals. However, if you take money out, you might not be able to pay it back into an ISA without using more of your ISA allowance.
3. Transfer investments to your spouse or civil partner
If your spouse pays less tax than you, or no tax at all, then they could be missing out on using valuable allowances each year. This includes the personal allowance, personal savings allowance, dividend allowance and capital gains tax allowance. You can gift investments to your spouse free of capital gains tax.
3 ways you and your partner can help save tax
Tax year ends 5 April
Open an ISA or Self-Invested Personal Pension with £100 or more.