New tax year means further income tax divergence for Scots

The changes proposed by the Scottish Government in the December Scottish Budget and agreed by MSPs in February will see:

• The threshold for paying the top rate of tax reduced from £150,000 to £125,140 (mirroring an equivalent change introduced by the UK Government that also takes effect from tomorrow)
• The higher rate of tax (paid on income between £43,663 and £125,140) increased by 1p to 42p
• The top rate of tax (paid on income above £125,140) increased by 1p to 47p

It means that from tomorrow, these changes will see Scots with earnings above £43,663 paying more income tax than they did last year, with the decision to increase the higher and top rates widening the difference in income tax liabilities between those on equivalent earnings in Scotland and the rest of the UK.

A Scottish taxpayer earning £50,000 in 2023/24 will pay £63.38 more than if they had earned the same amount in 2022/23. They will also be paying £1,552.48 more in 2023/24 than someone earning the same £50,000 salary in other parts of the UK.

For someone earning £150,000, those figures will be £2,432.08 and £3,857.88 respectively.

CIOT has provided a tax table at the foot of this release comparing Scottish and UK income tax liabilities in the year ahead, across a range of different income levels.

The Institute has also pointed out in 2023/24, as in the previous tax year (2022/23) taxpayers with income under £27,850 will pay up to £21.62 less tax than someone with equivalent earnings in the rest of the UK, due to the 19p Scottish starter rate of tax.

John Cullinane, CIOT Director of Public Policy, said:

“The start of the year means further income tax divergence for higher earning Scots.

“For those on lower incomes, the tax system will continue to be slightly more generous. This is due to the 19p Scottish rate of tax.

“The Scottish Government’s decision to tax higher earners more is intended to generate extra money to fund public services, but it may further fuel perceptions of a growing disparity between the tax treatment of higher earners in Scotland and elsewhere in the UK.

“Until now, the divergence created by devolution has not led to any noticeable changes in taxpayer behaviour.

“However more noticeable divergence – whether now or in the future as a result of further Scottish or UK tax changes, may prompt those who are able to, to consider whether they can legitimately reduce their liabilities by working less, paying a bit more into their pensions or incorporating a business in order to avoid higher tax rates”.

^{The table below shows the difference in income tax liabilities for taxpayers in Scotland and the rest of the UK in 2023/24. Although Wales can set its own rate of income tax, it has maintained parity with the rest of the UK.}

^{Figures are rounded to the nearest £.}