December 2015 – Scottish Rate Of Income Tax

Author: Mitchells Roberton
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  • Section 80C of the Scotland Act 1998 provides:

“(1) The Scottish Parliament may by resolution (a “Scottish rate resolution”) set the Scottish rate for the purpose of calculating the rates of income tax to be paid by Scottish taxpayers.”

  • It then refers one to section 6A of the Income Tax Act 2007 for those rates. Section 6A says:

“6A The Scottish basic, higher and additional rates 

(1) The Scottish basic rate, the Scottish higher rate and the Scottish additional rate for a tax year are calculated as follows.

Step 1

Take the basic rate, higher rate or additional rate.

Step 2

Deduct 10 percentage points.

Step 3

Add the Scottish rate (if any) set by the Scottish Parliament for that year.”

  • Importantly, section 80C(4) of the Scotland Act says that “[a] Scottish rate resolution may specify only one rate.” This means that the Scottish Rate of Income Tax (“SRIT”) will apply across all tax bands in a “lock-step” arrangement.
  • For example, if the rate were set at 9%, then the basic rate and higher rate and additional rate of income tax will all be 1% lower for Scottish taxpayers than taxpayers in the rest of the United Kingdom. Put another way, the rates for each band cannot be increased (or decreased) independently of one another.
  • As things stand so far, the SRIT is set to 10%. So income tax rates for Scottish taxpayers will for the time being be the same as those for other UK taxpayers.
  • SRIT will apply from 6th April next year and be charged on non-savings and non-dividend income of those individuals defined as “Scottish taxpayers”. The purpose of this Note is to look at who will count as a “Scottish taxpayer” for the purpose of SRIT.

“Scottish taxpayers”

  • Sections 80D to 80F of the Scotland Act 1998 define who will count as a “Scottish taxpayer” for the purposes of SRIT.
  • Generally speaking, a “Scottish taxpayer” is an individual who is resident in the UK for income tax purposes and either (i) has a “close connection” with Scotland, or (ii) does not have a “close connection” with England, Wales or Northern Ireland and spends more days in Scotland than any other part of the UK. Expanding on that a little:

 (i)          Having a “close connection” with Scotland 

  • An individual will have a “close connection” with Scotland if either they have only a single place of residence and that is in Scotland or, where they have more than one place of residence they have their main place of residence in Scotland for at least as much of the tax year as it has been in any one other part of the UK.

(ii)          Having no “close connection” with Scotland 

  • Where an individual has no “close connection” with Scotland or any other part of the UK  – either through its not being possible to identify any place of residence or a main residence – then one resorts to counting days to see whether more days are spent in Scotland than in any other part of the UK.
  • The detail on this is set out in the legislation and is supplemented by guidance issued by HMRC a couple of months ago (on 27th October 2015 and headed “Scottish Rate of Income Tax – Technical Guidance on Scottish Taxpayer Status”). As that guidance notes:

“For the vast majority of individuals, the question of whether or not they are a Scottish taxpayer will be a simple one – they will either live in Scotland and thus be a Scottish taxpayer or live elsewhere in the UK and not be a Scottish taxpayer. 

Whether or not an individual is a Scottish taxpayer will not, however, be simple in all cases. Where individuals have more complex living arrangements a range of evidence may assist in identifying whether an individual is or is not a Scottish taxpayer … When considering whether somewhere is a place of residence or main place of residence for the purposes of establishing Scottish taxpayer status, evidence to establish presence at a particular home and whether or not a home existed will be critical …   [But] no one piece of evidence is likely to definitely demonstrate the existence of a place or main place of residence. The weight and quality of all the evidence, taken together, should be considered.” 

  • In short, in many cases it will be obvious whether an individual counts as a Scottish taxpayer or not. But where the facts raise a question about that pinning the matter down may not be easy.

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Bruce Battersby:

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