Scottish Budget announcement – Income Tax and pension tax relief


Following the Chancellor’s Budget announcement in October, anyone living north of the border may have been less excited about the increases announced to the Income Tax bands and thresholds and instead may have been more eagerly awaiting the announcements within the Scottish Budget, scheduled for 12 December.

In his draft budget, Derek Mackay announced that there would be an increase in both the starter and basic band thresholds for the next tax year. The tax-free Personal Allowance will increase from £11,850 to £12,500 (the same as the rest of the UK) and the starting rate Income Tax threshold will increase from £13,850 to £14,549.

Meanwhile, the Scottish intermediate threshold will rise from £24,001 to £24,944, but the higher rate threshold has been frozen at £43,430, which differs substantially to the higher rate threshold of £50,000 in the rest of the UK.

As the Scottish Parliament has the power to set its own tax rates and bands, these will in turn affect the rate of pension tax relief.

Steven Cameron, pensions director at Aegon, commented: "Someone earning £50,000 in England, Wales or Northern Ireland would pay £7,500 in income tax from the 2019/20 tax year, while someone earning the same figure in Scotland would pay £9,044, which is £1,544 a year more or £128 a month extra.”

One advantage for those residing in Scotland surrounds pensions tax relief, as someone in Scotland earning £49,999 will be entitled to up to 41% tax relief on their pension contributions, compared to residents elsewhere in the UK with the same earnings who would only be entitled to 20% tax relief.

The increase to the higher rate threshold to £50,000 from 6 April 2019 may put pressure on the Scottish Parliament to make a change and whilst the rates of tax are different, everyone has the same Personal Allowance. This is due to increase to £12,500 from 6 April 2019.

We have two offices in Scotland and offices located in Cumbria, Northumberland and Yorkshire. Contact our financial planning and wealth management team for independent financial advice on 0808 144 5575.

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