Tolley® Exam Training PERSONAL INCOME TAX CHAPTER 10

CHAPTER 10

SCOTTISH TAXPAYERS

In this chapter you will cover:

– the rates of tax applicable to the non-savings income of Scottish taxpayers
– the taxation of interest and dividend income of Scottish taxpayers
– the definition of a Scottish taxpayer

10.1 Introduction

Scottish taxpayers pay Scottish income tax in respect of their non-savings income.
ITA 2007, s.11A

The Scottish Parliament has the power to vary the basic, higher and additional rate
of income tax payable by Scottish taxpayers on non-savings income. It can also
create new tax bands to apply to non-savings income.

However, the Scottish Parliament cannot amend the level of the personal
allowance for Scottish taxpayers and cannot create or remove income tax reliefs.

This chapter will look at how to calculate the income tax liability of a Scottish
taxpayer.

10.2 Rates of Tax for Non-Savings Income

In 2018/19, five rates of Scottish tax apply to the taxable non-savings income of
Scottish taxpayers.

There is the starter rate of 19%, the basic rate of 20%, the intermediate rate of 21%,
the higher rate of 41% and the top rate of 46%.

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The first £2,000 of non-savings income is charged at the starter rate, which is 19%.
Where non-savings income exceeds £2,000, the next £10,150 of income falls within
the basic rate band and is charged at 20%. If income exceeds the basic rate limit
of £12,150, the next £19,430 of income is taxed at the intermediate rate of 21%. For
individuals with non-savings income in excess of the intermediate rate limit of
£31,580, the higher rate of 41% applies to income between £31,580 and £150,000,
being the next £118,420 of income. Non-savings income in excess of £150,000 is
taxed at the top rate of 46%.

TOP RATE
46% ← Excess

£150,000

HIGHER RATE Next

41% ← £118,420

£31,580

INTERMEDIATE RATE Next

21% ← £19,430

£12,150

BASIC RATE Next

20% ← £10,150

£2,000

STARTER RATE First

19% ← £2,000

£0

It is important to remember that the calculation of taxable income is the same for
both Scottish and non-Scottish taxpayers. The personal allowance is set by the UK
government for all UK taxpayers. The Scottish Parliament does not have the power
to amend the level of the personal allowance for Scottish taxpayers.

So, in 2018/19 a Scottish taxpayer is entitled to the personal allowance of £11,850.

If a Scottish taxpayer has adjusted net income in excess of £100,000, the personal
allowance will be reduced by one half of the excess income above £100,000, in
the same way as for a non-Scottish taxpayer.

 Illustration 1

Liam is a Scottish taxpayer. In 2018/19 his only source of income is his salary of
£44,000.

Calculate Liam’s income tax liability.

£
Income from earnings 44,000
Less: Personal allowance (11,850)
Taxable Income 32,150

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Tax
2,000 @ 19% 380
10,150 @ 20% 2,030
19,430 @ 21% 4,080
570 @41% 234
32,150
Tax liability 6,724

The personal allowance of £11,850 is deducted as normal to arrive at taxable

income of £32,150. We can see that Liam pays tax at four different rates on his
taxable non-savings income in 2018/19. The first £2,000 is taxed at the starter rate of
19%. The next £10,150 falls within the basic rate band and is taxed at 20%. The next
£19,430 is in the intermediate rate band and is taxed at 21%. Liam’s non-savings
income exceeds the intermediate rate limit of £31,850 so the remaining income of
£570 falls within the higher rate band. This is taxed at 41%, giving a total tax liability
of £6,724.

 Illustration 2

Clara is a Scottish taxpayer. Her only source of income in 2018/19 is her salary of
£200,000.

Calculate Clara’s income tax liability.

£
Income from earnings 200,000
Less: Personal allowance (reduced to nil) (Nil)
Taxable Income 200,000

Tax
2,000 @ 19% 380
10,150 @ 20% 2,030
19,430 @ 21% 4,080
118,420 @ 41% 48,552
50,000 @ 46% 23,000
200,000
Tax liability 78,042

Clara’s adjusted net income exceeds £100,000 to such an extent that her personal
allowance is reduced to nil. Her taxable non-savings income exceeds £150,000 so
that all five Scottish tax rates apply to her income in 2018/19.

In 2017/2018 the rates of income tax for Scottish taxpayers were the same as the
main rates of tax. So, a Scottish taxpayer paid basic rate tax of 20%, higher rate tax
of 40% and additional rate tax of 45% in respect of their non-savings income.

However, in 2017/18 the basic rate limit for Scottish taxpayers, when calculating
the tax liability in respect of non-savings income, was different than that for non-
Scottish taxpayers. For Scottish taxpayers, the basic rate band in 2017/18 was
£31,500.

The higher rate limit remained £150,000 for Scottish taxpayers, giving a higher rate
band of £118,500.

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10.3 Taxation of Savings Income for Scottish Taxpayers

Although the tax liability on a Scottish taxpayer’s non-savings income is calculated

by reference to the Scottish tax bands and rates, these do not apply when
calculating the tax liability on the savings income of a Scottish taxpayer.

Scottish taxpayers suffer tax on their savings income in exactly the same way as all
other UK taxpayers. The savings rates of tax apply and Scottish taxpayers are
entitled to the starting rate band and savings allowance as normal. So, the rates of
tax applying to the savings income of Scottish taxpayers are the savings rates of
0%, 20%, 40% and 45%.

When calculating the rate of tax applicable to a Scottish taxpayer’s savings

income, we need to consider the tax bands applicable for non-Scottish taxpayers,
in order to calculate the amount of the savings allowance available and the rates
of tax which will apply.

So, when determining if a Scottish taxpayer has higher rate or additional rate
income for the purposes of establishing the amount of the savings allowance, their
total taxable income is compared to the basic and higher rate bands for non-
Scottish taxpayers.

Similarly, savings income will only be subject to the higher rate or additional rate if
taxable income exceeds the non-Scottish basic or higher rate bands, even if the
Scottish intermediate, higher or top rate tax is paid on taxable non-savings
income.

 Illustration 3

Let’s go back to Liam from our earlier illustration, but this time assume that he also
received bank interest of £1,200 in 2018/19:

£
Salary 44,000
Bank interest 1,200

Calculate his tax liability.

Non Savings Interest

£ £
Income from earnings 44,000
Interest ______ 1,200
Net income 44,000 1,200
Less: Personal Allowance (11,850) ______
Taxable Income 32,150 1,200

Tax
2,000 @ 19% 380
10,150 @ 20% 2,030
19,430 @ 21% 4,080
570 @41% 48,552
32,150 23,000
1,000 @ 0% Nil
200 @ 20% 40
Tax liability 6,764

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Liam’s tax liability on his non-savings income is calculated in exactly the same way
as before, applying the Scottish tax bands and rates. As we can see, Liam pays tax
in excess of the basic rate for Scottish tax purposes.

However, when calculating his available savings allowance and the rate of tax
due on his savings income we compare his taxable income to the bands
applicable to non-Scottish taxpayers. Liam’s total taxable income is £33,350 which
is less than the non-Scottish basic rate limit of £34,500 such that Liam is not a higher
rate taxpayer for the purposes of taxing savings income. Therefore, he is entitled to
a savings allowance of £1,000 and his savings income in excess of the savings
allowance is taxed at the basic rate of 20%.

 Illustration 4

We will now return to Clara from our earlier illustration, but this time assume that she
also received bank interest of £2,000.

£
Salary 200,000
Bank interest 2,000

Calculate Clara’s income tax liability.

Non Savings Interest

£ £
Income from earnings 200,000
Interest ______ 2,000
Net income 200,000 2,000
Less: Personal Allowance (reduced to nil) (Nil) ______
Taxable Income 200,000 2,000

Tax
2,000 @ 19% 380
10,150 @ 20% 2,030
19,430 @ 21% 4,080
118,420 @41% 48,552
50,000 @46% 23,000
200,000
2,000 @ 45% 900
Tax liability 78,942

Clara’s tax liability on her non-savings income is calculated in the same way as
before. Her taxable income exceeds the non-Scottish higher rate limit such that
Clara is an additional rate taxpayer for the purposes of calculating the tax due on
her interest. Therefore, she is not entitled to the savings allowance and the interest
is taxed at the savings additional rate of 45%.

10.4 Taxation of Dividend Income for Scottish Taxpayers

Scottish taxpayers suffer tax on their dividend income in exactly the same way as
all other UK taxpayers.

A Scottish taxpayer is entitled to the dividend allowance of £2,000 in 2018/19 and

their dividend income in excess of the dividend allowance suffers tax at the
dividend rates of 7.5%, 32.5% and 38.1%, depending on the level of their income.

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As we saw with savings income, when calculating the rate of tax applicable to a
Scottish taxpayer’s dividend income, we compare their taxable income to the tax
bands applicable for non-Scottish taxpayers.

10.5 Reliefs

The Marriage Allowance

Where the necessary conditions are met, the Marriage Allowance allows
taxpayers to transfer 10% of their personal allowance to their spouse/civil partner,
who receives a tax reduction equal to 20% of the transferred amount.

The Marriage Allowance is not available to non-Scottish taxpayers where either

partner pays tax at a rate other than the basic rate (or the savings rate of 0% and
the dividend rates of 0% and 7.5%) or would pay tax at the dividend upper or
additional rate if the dividend allowance was ignored. ITA 2007, s.55B(2)

However, for Scottish taxpayers, an election for the Marriage Allowance can still
be made where one of the partners pays tax at the intermediate rate of 21% (as
well as the starter rate of 19% and the basic rate of 20%).

Gift Aid

Individuals receive tax relief in respect of gift aid donations.

Gift aid donations are made net of basic rate tax of 20%, regardless of whether the
person making the payment is a non-Scottish or Scottish taxpayer. If the taxpayer is
Scottish, then for the purposes of calculating Scottish tax on non-savings income,
the Scottish basic, intermediate and higher rate tax limits will also be extended by
the gross amount of the donation.

10.6 Definition of a Scottish Taxpayer

In order to be a Scottish taxpayer, an individual must be resident in the UK for tax

purposes – an individual who is not UK tax resident cannot be a Scottish taxpayer.

A UK resident individual will be a Scottish taxpayer for a tax year if:

• they have a ‘close connection’ to Scotland; or

• where no close connection to Scotland (or any other part of the UK) exists,
they spend at least as many days in Scotland as elsewhere in the UK.

In the majority of cases, Scottish taxpayer status will be determined by considering

where the individual has a ‘close connection’.

An individual has a close connection to Scotland if:

• they have only a single ‘place of residence’, which is in Scotland; or

• they have more than one place of residence in the UK but their ‘main place of
residence’ is in Scotland for at least as much of the tax year as it has been in
any other part of the UK.

For the purposes of determining Scottish taxpayer status, HMRC consider an

individual’s ‘place of residence’ to be the place that a reasonable onlooker, with
knowledge of the material facts, would consider to be the place in which that
person habitually lives ie his home.

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A place of residence can be a building, vehicle, vessel or structure of any kind as

long as it is used by the individual with a sufficient degree of regularity and
permanence. It does not have to be owned by the individual.

If a property is made available by an individual for letting commercially it will not

be their place of residence (unless they retain and exercise a right to live there). A
property which is used as nothing more than a holiday home or in which the
individual never stays, such as a property purchased as an investment, is not a
place of residence.

 Illustration 5

Paul and Simon, who were both born in Scotland, are UK residents. Both work in a
factory in Dumfries, Scotland. Paul lives with his parents in their house in
Newbridge, Scotland. Simon lives in a flat in Carlisle, England which he owns.

Explain whether or not Paul and Simon are Scottish taxpayers.

Even though Paul does not own the property, his single place of residence is the
house in Newbridge, Scotland. He therefore has a close connection to Scotland
and is a Scottish taxpayer.

Simon’s single place of residence is his flat in Carlisle, England. As a result, Simon
has a close connection to England and is not a Scottish taxpayer. The fact that
Simon was born in Scotland and works in Scotland is irrelevant.

 Illustration 6

Jenny has owned and lived in a flat in Glasgow for the past 10 years. On 30 June
2018 she sold the flat and moved into a new house in Birmingham on 1 July 2018.

Explain whether Jenny is a Scottish taxpayer for 2018/19.

Jenny has two places of residence in 2018/19 – the flat in Glasgow and the house
in Birmingham. However, the place of residence was in Glasgow for only 3 months
(6 April to 30 June) which is less than the time that the place of residence was in
Birmingham, being 9 months (1 July to 5 April 2019).

Therefore, Jenny is not a Scottish taxpayer for 2018/19.

Where a taxpayer has two places of residence in the UK at the same time and one
is in Scotland, it will be necessary to establish which is the main place of residence.
A main place of residence is not necessarily the residence where the individual
spends the majority of their time but is the place of residence with which the
individual has the greatest degree of connection.

Various factors can be considered in order to decide this including:

• if the individual is married, in a civil partnership or long term relationship, where

does the family spend its time?

• if the individual has children, where do they go to school?

• location of social/non-work activity?

• how is each residence furnished?

• where are the majority of the individual’s possessions?

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• where is the individual registered for a doctor/to vote?

 Illustration 7

Stuart has a family home in Edinburgh with his partner and their two children. Stuart
is required to work in London a significant amount of time so he rents a furnished
flat there which he lives in Monday to Thursday for 3 weeks every month. Stuart
works long hours when he is in London so his main social life is in Edinburgh.

Explain whether Stuart is a Scottish taxpayer.

The home in Edinburgh and the flat in London are both ‘places of residence’ so it is
necessary to determine which is Stuart’s ‘main place of residence’. Although
Stuart spends a significant amount of time in the London flat, his family spends its
time in the home in Edinburgh, which contains his possessions (as the London flat is
a furnished property). His friends and social activities are also in Edinburgh
therefore the house in Edinburgh is his main place of residence.

Stuart is therefore a Scottish taxpayer.

If a UK resident does not have a close connection to Scotland or any other part of
the UK because they do not have a place of residence or main place of
residence, it will be necessary to compare the amount of days spent in Scotland to
the amount of days spent in other parts of the UK to determine whether an
individual is a Scottish taxpayer or not.

Where an individual has spent a day is determined by where they are at midnight
(unless they are in transit in the UK).

 Illustration 8

Barry, who is single, is a UK resident individual who works on short term consultancy
projects which require him to travel around the UK at short notice. As a result, Barry
does not have a place of residence in the UK in 2018/19. He spends 150 days in
Scotland, 120 days in England and 50 days in Wales (with the balance overseas).

Explain whether Barry is a Scottish taxpayer for 2018/19.

The days spent in Scotland must be compared to the total of the days spent in
England and Wales. As the 150 days spent in Scotland are less than the 170 days
spent in other parts of the UK, Barry is not a Scottish taxpayer for 2018/19.

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EXAMPLES

 Example 1

Mr Green, a Scottish taxpayer, has the following income in 2018/19:

Calculate his income tax due/repayable.

£
Salary (PAYE £9,000) 45,000
UK rental income 3,500
Premium bond winnings 2,000

 Example 2

Mr Glen, a Scottish taxpayer, has the following income in 2018/19:

£
Salary (PAYE £8,200) 48,600
UK dividends 7,000

Calculate his income tax due/repayable.

 Example 3

Ms Dell, a Scottish taxpayer, has the following income in 2018/19:

£
Salary (PAYE £8,500) 50,000
Bank Interest 800

She made a gift aid donation of £500 (net) in 2018/19.

Calculate her income tax due/repayable.

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ANSWERS

 Answer 1

Non Savings
£
Income from earnings 45,000
Property income 3,500
Premium bond winnings Exempt
Net Income 48,500
Less: Personal allowance (11,850)
Taxable Income 36,650

Tax
2,000 @ 19% 380
10,150 @ 20% 2,030
19,430 @ 21% 4,080
5,070 @ 41% 2,079
Tax liability 8,569
Less: PAYE deducted (9,000)
Tax repayable to Mr Green (431)

 Answer 2

Non Dividends
Savings
£ £
Income from earnings 48,600
Dividends _____ 7,000
Net Income 48,600 7,000
Less: Personal allowance (11,850) _____
Taxable Income 36,750 7,000

Tax
2,000 @ 19% 380
10,150 @ 20% 2,030
19,430 @ 21% 4,080
5,170 @ 41% 2,120
2,000 @ 0% Nil
5,000 @ 32.5% 1,625
Tax liability 10,235
Less: PAYE deducted (8,200)
Tax due 2,035

 Answer 3

Non Interest
Savings
£ £
Income from earnings 50,000
Interest _____ 800
Net Income 50,000 800
Less: Personal allowance (11,850) ___
Taxable Income 38,150 800

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Tax
2,000 @ 19% 380
10,775 @ 20% 2,155
12,775 (W)
19,430 @ 21% 4,080
32,205 (W)
5,945 @ 41% 2,437
500 @ 0% Nil
300 @ 40% 120
Tax liability 9,172
Less: PAYE deducted (8,500)
Tax due 672

Workings

Scottish Tax Limits

£
Original basic rate limit 12,150
Add: Gross donation (500 x 100/80) 625
12,775

Original intermediate rate limit 31,580

Add: Gross donation 625
32,205

UK Basic Rate Limit

£
Original basic rate limit 34,500
Add: Gross donation 625
35,125

Total income exceeds the basic rate limit therefore Ms Dell is entitled to a savings
allowance of £500 and her interest income is taxed at 40%.

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SCOTTISH TAXPAYERS

CALCULATION OF TAX

The calculation of taxable income and the personal allowance is the same for both
Scottish and non-Scottish taxpayers.

Scottish taxpayers pay Scottish income tax on their non-savings income, which is taxed at
the following rates in 2018/19:

• First £2,000 at 19% (starter rate)

• Next £10,150 at 20% (basic rate)

• Next £19,430 at 21% (intermediate rate)

• Next £118,420 at 41% (higher rate)

• Rest at 46% (top rate)

Scottish taxpayers pay tax at the savings rates on saving income and the dividend rates
on dividend income in exactly the same way as all other UK taxpayers.

When calculating the amount of the savings allowance and the tax due on savings and
dividend income for Scottish taxpayers, the non-Scottish tax bands are used.

RELIEFS

The Marriage Allowance is still available where a Scottish taxpayer pays tax at the
intermediate tax rate.

Gift aid donations by Scottish taxpayers are paid net of 20% tax and also extend the
Scottish basic, intermediate and higher rate tax limits by the amount of the gross donation.

DEFINITION OF A SCOTTISH TAXPAYER

A UK resident individual will be a Scottish taxpayer for a tax year if:

• they have a ‘close connection’ to Scotland; or

• where no close connection, they spend at least as many days in Scotland as

elsewhere in the UK.

A ‘close connection’ exists if:

• the individual has only a single place of residence which is in Scotland; or

• where the individual has more than once place of residence in the UK, their main
place of residence is in Scotland for at least as much of the tax year as it is in any other
part of the UK.

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