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Income Tax: Scotland and UK

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Income Tax: Scotland and the UK

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Taxation in Scotland has changed significantly in recent years. Since 2017, the Scottish Parliament have had new income tax powers devolved.

By 2019, the Scottish Government had moved to a new five-band Income Tax system which was estimated to raise £500m for Scotland’s public finances (compared to if the UK Government policy were applied).
The additional revenue was raised by subjecting taxpayers in the top half of the income distribution to larger tax rates than they would face in rUK. (FAI)

Scotland Income Tax Bands

Income Band	Band name	Tax Rate
Up to £12,570	Personal Allowance	0%
£12,571 - £14,732	Starter Rate	19%
£14,733 - £25,688	Scottish Basic Rate	20%
£25,689 - £43,662	Intermediate Rate	21%
£43,663 - £125,140	Higher Rate	42%
Over £125,140	Top Rate	47%

(Refers to annual income earned in financial year 2023-2024)

Rest of UK Income Tax Bands

Income Band	Band Name	Tax rate
Up to £12,570	Personal Allowance	0%
£12,571 to £50,270	Basic rate	20%
£50,271 to £125,140	Higher rate	40%
over £125,140	Additional rate	45%

(Refers to annual income earned in financial year 2023-2024)

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The Personal Tax Allowance means that individuals earning less than £12,571 in Scotland and the rUK pay no income tax.

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How exactly do tax bands work? A common misunderstanding is that in Scotland, a taxpayer earning £45,000 will pay the higher rate of 42% on all of their income. However, the rate of 42% is only paid on income ABOVE £43,663.

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Scotland vs United Kingdom: To further understanding of the difference between tax bands between Scotland and the UK, use the UK government tax calculator to compare after-tax incomes if you were to live in Scotland or England!

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The table below shows that the amount of tax that someone earning £45,000 p/year will pay differs if they live in Scotland or the United Kingdom!

	United Kingdom	Scotland
Taxable Pay	£45,000	£45,000
Income Tax	£6,484.20	£6,934.70
National Insurance	£3,891.60	£3,891.60
Total Tax to Pay	£10,375.80	£10,826.30

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Try the tax calculator for yourself here:

Estimate your Income Tax for the current year

Estimate how much Income Tax and National Insurance you can expect to pay for the current tax year (6 April 2023 to 5 April 2024).

www.gov.uk

Estimate your Income Tax for the current year

Scottish Income Tax in 2023

In December 2022, the Scottish Government announced that income tax rates for higher earners would increase from 41% to 42%. This was announced in response to the cost-of-living crisis and their need to generate tax revenue to improve public services in Scotland. These policy changes meant that those earning higher incomes in the UK would pay more tax than they previously would.

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The Fraser of Allander Institute explore in detail the income tax rate increase in Scotland, and assess the potential impacts it may have. Read more here:

A first glance - Scottish budget 2023-2024 | FAI

Early today, the Deputy First Minister announced the Scottish Government’s draft budget. This is (hopefully!) the last of many fiscal statements this year affecting Scotland. As well as the draft…

fraserofallander.org

A first glance - Scottish budget 2023-2024 | FAI

Download the data used in this chart here:

Income Tax Liability Comparison - Scotland and rUK.xlsx9.7KB

How many Scots fall into these marginal rates?

Are Scots better or worse off under the Scottish or UK income tax bands?

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To answer this, we need to compare the Total Income Tax Liability (the amount of tax owed for a certain income) between Scotland and the UK. In other words, for a given level of income, would you pay more income tax under the Scottish system or the UK system?

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How to interpret this graph?

On the x-axis we have ‘annual taxable income’, which refers to total income before tax. On the y-axis we compare the total income tax liability (rUK minus Scotland), at each of those levels of income, under Scotland’s income tax system and the rUK Income Tax system.

Download the dataset used in this graph below:

Income Tax Liability Comparison - Scotland and rUK.xlsx9.7KB

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The progressive Scottish income tax system means that 52% of total Scottish taxpayers will pay slightly less Income Tax in 2023-24 than they would elsewhere in the UK while higher-earners will pay significantly more (Scottish Government).

Try it for yourself! Use this calculator to compare tax liability for different income levels in Scotland vs. rUK.