Changes to the Scottish rate of income tax
The Scottish rate of income (SRIT) commenced on 6 April 2016 and is administered by HMRC on behalf of the Scottish government. The SRIT is payable on the non-savings and non-dividend income of those defined as Scottish taxpayers. For the 2016-17 the income tax rates and bands remained the same as in the rest of the UK.
The Scottish Government published a draft Budget on 15 December 2016 and has proposed changes to the SRIT from 6 April 2017. Whilst the income tax rates will remain the same as in the rest of the UK, the higher rate of income tax threshold is proposed to increase in line with inflation to £43,430 in 2017-18. This will represent a change from next year’s higher rate income tax threshold in the rest of the UK which is due to increase to £45,000. This means that higher rate Scottish taxpayers will pay an extra £314 tax in 2016-17 compared to their counterparts in the rest of the UK.
The definition of a Scottish taxpayer is generally focused on the question of whether the taxpayer has a ‘close connection’ with Scotland or elsewhere in the UK. The liability to SRIT is not based on nationalist identity, location of work or the source of a person’s income e.g. receiving a salary from a Scottish business.
HMRC’s guidance states that for the vast majority of individuals, the question of whether or not they are defined as a Scottish taxpayer will be a simple one – they will either live in Scotland and thus be a Scottish taxpayer or live elsewhere in the UK and not be a Scottish taxpayer.
There will always be cases where a taxpayer’s status is not so clear cut. HMRC’s technical guidance looks at relevant case law and includes examples where a taxpayer has more than one residence either side of the border.