Relocating Scots warned about tax implications

Young Scots who normally live and work in London and other UK cities, but who have given up expensive accommodation and relocated back home during the pandemic could face bigger tax bills, Blick Rothenberg is warning

With lockdown restrictions continuing and many individuals not able to work consistently in their usual offices or enjoy the advantages of urban living, some Scottish workers are leaving high cost rentals in favour of working from the family home.

Robert Salter, a director at Blick Rothenberg, said: ‘Moving back to mum and dad can make a great deal of sense – it eliminates the need to pay expensive London rents and can also help address the feelings of isolation that have arisen for many during the Covid lockdowns, but  that this change of residence can have unforeseen tax consequences.

‘The problem is that that income tax rates in Scotland are considerably higher than in the rest of the UK for medium or high earners.’

As a consequence, someone earning £50,000 per annum, who is Scottish tax resident will actually pay approximately £1500 more in income taxes, than someone who is resident in the rest of the UK.

Salter said: ‘It is actually very easy for someone to “inadvertently” become Scottish tax resident without having consciously considered the position.

‘If someone happens to live in Scotland for 183 days in the tax year (i.e. between 6 April 2020 – 5April 2021), they will be Scottish tax resident for the whole year and be liable to Scottish taxes on all of their income for the year.’

Salter caution that if individuals actually have two ‘homes’ available to them during the year – one in Scotland and one in the rest of the UK - it is actually possible that they could be Scottish tax resident even when they spend less than 183 days in Scotland during the tax year.

This could be the case where someone’s  wider links, such as family ties, social links, personal property, in Scotland are held to be more substantive than the ongoing links they have retained in the rest of the UK.

Salter said: ‘Anyone with concerns about their Scottish status, should discuss the position directly with HMRC to clarify if they are becoming liable to Scottish taxes. 

‘By doing this pro-actively, taxpayers can ensure that any additional taxes which may be due can be collected pro-actively via the PAYE system.

‘Nobody who is in this position should ignore the situation or they could find that they owe significant additional taxes - which could need to be settled at short notice – e.g. as part of the 2020/21 UK tax return filing.’

On the plus side, Salter said Scottish-based individuals who relocate to the rest of the UK during Covid may be able to benefit from the lower income tax rates in the rest of the UK. 

In addition, lower earners who relocate to Scotland may benefit from slightly lower tax rates than those based in other home nations.

Scottish rates and bands for 2020 to 2021

On 4 March 2020 the Scottish Parliament set the following income tax rates and bands for 2020 to 2021.

Bands

Band name

Rate

Over £12,500 - £14,585

Starter Rate

19%

Over £14,585 - £25,158

Scottish Basic Rate

20%

Over £25,158 - £43,430

Intermediate Rate

21%

Over £43,430 - £150,000

Higher Rate

41%

Over £150,000

Top Rate

46%

The first band assumes individuals are in receipt of the Standard UK Personal Allowance.

Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

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