02 May 2018

Scottish rate of income tax

The new Scottish rates of income tax came into effect on 6 April 2018. The changes we needed to make to implement these new rates cover three main areas:

  • Notification of residency
  • The Scottish tax rate and threshold changes
  • Relief at source

Notification of residency

HM Revenue & Customs (HMRC) provided us with the residency status of our existing members as at 5 April 2017. Going forward we can carry out individual or multiple member searches for new members ourselves using the information provided by HMRC.

When administering the Scottish tax rates for Relief At Source, we have to use the residency status provided by HMRC – we are not permitted to use information provided to us by the employer or any other party (including the member). HMRC will provide us with updates to residency information each year. 

We use this information to apply an ‘s’ marker to our member records. This marker ensures that any tax payments or relief at source is applied at the correct rate for all existing and new members.

The Scottish Tax Rate and threshold changes

The rate changes impact the taxable income payments we make to customers through drawdown, Uncrystallised Funds Pension Lump Sums (UFPLS) or annuities. Where emergency tax codes are used, HMRC guidance states that we use the ‘rest of UK’ tax rates.

Tax bands for Scotland, for the 2018/2019 tax year, are as follows:

Tax bands for Scotland
Scottish band name Scottish rates (%) Scottish bands
 Starter  19%  £11,851* - £13,850*
 Basic  20%  £13,851* - £24,000*
 Intermediate  21%  £24,001* - £43,430*
 Higher  41%  £43,431* - £150,000
 Top  46%  Over £150,000**

*Assumes member is in receipt of the Standard UK Personal Allowance

**Personal Allowance reduced by £1 for every £2 earned over £100,000

Relief at source

Your pension scheme administrator will continue to give you tax relief at the basic rate of 20%, even if you pay the Scottish starter rate of Income Tax at 19%. If you pay tax at a rate higher than 20%, you are entitled to claim your additional relief by contacting HMRC or completing a Self-Assessment tax return.  

We have ensured that our systems can cope if the rate changes in the future.

If you would like to communicate these changes to your employees, HMRC has provided a letter template which you can find here. Our own communications have been updated to reflect these changes.

For more information, contact your usual Legal & General representative.