Questions and answers about Scottish tax

We recommend you get independent professional advice from a Tax Adviser if you’re unsure what to do. A Tax Adviser can make a personal recommendation based on your individual circumstances and the options available to you.

If you don’t have an adviser, you can find one at www.unbiased.co.uk or call them on 0800 020 9430. You may have to pay for any advice you receive.

You can find more information on the Scottish Government website at www.gov.scot/incometax or by searching for ‘Scottish rate’ at www.gov.uk. 

1. What is the Scottish Rate of income tax?

The Scottish Parliament has the power to set rates and bands of income tax for Scottish taxpayers. Scottish income tax is paid on earned income only, not income from savings or dividends. Income rates (and bands) can be found by searching for “UK income tax” or “Scottish income tax” at www.gov.uk.

2. Who does it affect?

It only applies to those deemed to be Scottish taxpayers by HM Revenue and Customs (HMRC). This is anyone who is resident in the UK for tax purposes and whose sole or main place of residence is in Scotland for all or most of the tax year, rather than in another part of the UK.

3. How will I know if I am regarded as a Scottish taxpayer?

HMRC will write to you to notify you that you’re a Scottish taxpayer and will also add an “S” to the end of your tax code to show you’re a Scottish taxpayer.

4. I’m Scottish but I live in England / Wales / Northern Ireland. Do I pay Scottish income tax?

No, you only pay Scottish income tax if you’re a Scottish taxpayer. Scottish people who do not reside in Scotland are not usually Scottish taxpayers. If you have a home in Scotland and a home elsewhere in the UK, HMRC will decide if you’re classed as a Scottish taxpayer or not.

5. Is Scottish income tax different from income tax in the rest of the UK?

Income tax for Scottish taxpayers can be different to the rest of the UK. Visit www.gov.uk and search for “UK income tax” or “Scottish income tax”.

6. I am now a Scottish taxpayer. What tax relief will I receive on contributions to my pension and how will it be applied?

You’ll receive tax relief on your pension contributions up to the amount you earn each year. If you’ve flexibly accessed your pension savings you can contribute up to £4,000 each year and receive tax relief, known as the Money Purchase Annual Allowance (MPAA).

The amount of tax relief that your pension provider applies to your contributions, will depend on the type of pension you have.

• I have a personal pension
  Your pension provider applies tax relief at the basic rate of income tax, to the contributions you pay into your personal pension.  If you’re an intermediate, higher or additional rate taxpayer, only tax relief at the basic rate is applied to your contributions. You’ll need to claim further tax relief from HM Revenue & Customs (HMRC).  If you don’t earn an income or you’re a starter rate taxpayer, you’ll receive tax relief on your contributions at the basic rate. You won’t have to repay any tax relief to HMRC, even though tax relief is provided at a higher rate to the rate of income tax you pay.

• I have an occupational pension
  Your contributions into an occupational pension scheme are deducted from your earnings by your employer, before income tax is calculated. This means you normally receive your full amount of tax relief up front under PAYE. The amount you’ll receive will depend on the rate of income tax you pay.

7. I am now a Scottish taxpayer. How will my income be taxed?

• We can only deduct Scottish income tax if HMRC has told us that you’re a Scottish taxpayer. If HMRC hasn’t given us this information, we will continue to deduct tax on a UK basis until HMRC confirms tax should be deducted on a Scottish basis.  If your tax residency changes to Scotland part-way through a tax year, we will start to deduct income tax from your pension income at Scottish rates of tax, in accordance with your tax code.

• If your payment includes a tax-free amount (usually 25% of your payment)…..
  This doesn’t affect any tax-free lump sums you may have been eligible for. If you were eligible for 25% tax-free before this change, then there will be no change to the 25% tax-free lump sum.

8. I am now a Scottish taxpayer. How will my tax relief change?

If we have already started to claim tax relief on your contributions on a UK basis, we will continue to do so until the end of the tax year when we will start to claim on the Scottish basis. Currently the tax relief for the UK and Scotland is the same (at 20%).

9. Does it matter where my pension provider is based?

No. If you live in Scotland, Scottish income tax usually applies. If you live in England, Wales or Northern Ireland, the UK rates usually apply. It doesn’t matter what part of the UK your pension provider is based in.  Although ReAssure is based in England, Scottish taxpayers are subject to Scottish income tax.