The new tax year sees the introduction of the Scottish Rate of Income Tax (SRIT), set by the Scottish parliament under new devolved powers, but with HMRC continuing to be responsible for its collection and management from 6 April
From 6 April 2016, the UK income tax rates, the basic, higher and additional rates, paid by Scottish taxpayers will be reduced by 10% (10p in the pound).
The Scottish rate will then be set annually by the Scottish parliament at any value from 0% upwards in half pence units.
The Scottish government does not have the power to vary the Scottish rate of income tax by band. It can only be applied equally to all tax bands, which means that any change to the rate affects all basic, higher and additional taxpayers.
On the 11 February 2016 the Scottish parliament agreed to set the Scottish rate at 10% (10 pence in the pound) for tax year 2016/17. Therefore the SRIT rates will match those in the rest of the UK, at 20%, 40% and 45%.
From 2017/18, the Scottish parliament will have further income tax powers under the Scotland Act 2016. This provides the Scottish parliament with the power to set the rates and band thresholds that will apply to all non-savings non-dividend income tax paid by Scottish taxpayers.
As a result, the Scottish parliament will be able to set the rates and band thresholds (excluding the personal allowance) for the first time for tax year 2017/18.
In a speech at the end of last month, Scotland’s first minister Nicola Sturgeon outlined plans which would mean income tax rates in Scotland will be frozen, with no increases in the basic, higher or additional rate.
Sturgeon said the tax cuts brought about by increases to the higher rate threshold proposed in the last Budget would not be passed on under the proposals. Instead, the higher rate threshold will be frozen in real terms and increased only in line with CPI inflation in 2017/18 and by no more than inflation until 2021/22.
This would mean that next year the threshold for higher rate taxpayers will go from £43,000 to £43,387
The exact level of the higher rate threshold will be set out each year by the Scottish government at the budget.
Under the proposals, Sturgeon said the Scottish government will ensure a personal allowance of £12,750 in 2021/22. If necessary, the Scottish government will create a zero rate band to ensure that this protection for low income households is delivered. The UK government has said it expects the personal allowance to reach £12,500 by 2020/21.
Sturgeon said: ‘By taking a distinctly different course to the UK government and by rejecting the large tax cuts, over the next five years, we can secure more than £1bn of additional investment in our hospitals, our schools, our economy and to support the additional benefits available for taxpayers in Scotland such as free personal care, free education and free prescriptions.’
HMRC information on SRIT is here