The Scottish Parliament voted on Tuesday 21st February 2016, for the first time, to use the new income tax powers devolved to it under the Scotland Act 2016.

The new powers allow the Scottish Parliament to set as many rates and bands of income tax as it wishes.

The Scottish Government proposed to keep the income tax rates the same as the rest of the UK, but to maintain a lower threshold at which the higher rate of income tax would be paid. Because the Scottish Government is a minority one, the governing SNP was required to negotiate with other parties in the Parliament to pass its budget. The Government entered into a deal with the Green Party to do so.

Changes to higher rate income tax 

The result of the deal between the SNP and the Greens is that there will be no change from the current threshold at which the higher rate of income tax is paid. From 6th April 2017, therefore, the higher rate income tax will be paid at £43,000 in Scotland, and at £45,000 in the rest of the UK.

The budget resolution passed by the Scottish Government therefore sets out the following:-

  • The Scottish basic rate of income tax is 20%, charged on income (above the personal tax allowance of £11,500) up to a Scottish basic rate limit of £31,500;
  • The Scottish higher rate of income tax is 40%, charged on income above the Scottish basic rate limit and up to £150,000; and
  • The Scottish additional rate of income tax is 45%, charged on income above £150,001.

It should be pointed out that these tax rates apply only to “Scottish Taxpayers” as defined in legislation, and to non‑savings income; they do not apply to interest on bank accounts, nor do they apply to dividends.