Scottish Budget 2018
15 December 2017
The draft Scottish Budget has introduced a new five tier income tax system for Scottish taxpayers. These will see higher and additional rate taxpayers paying an additional 1% on their income as well introducing new starter (19%) and intermediate (21%) tax bands.
The new rates and bands set to be introduced from April 2018 are:
| Above £150,000** | 46% |
| Gross income | Income tax rate |
| £11,850* to £13,850 | 19% |
| £13,851 to £24,000 | 20% |
| £24,001 to £44,273 | 21% |
| £44,274 to £150,000** | 41% |
* Assumes individuals are in receipt of the standard UK personal allowance.
** Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.
What does this mean for pension tax relief?
These changes will see the many pension savers benefiting from an additional 1% tax relief on their contributions.
Relief at source
Anyone in a scheme which operates relief at source, such as SIPPs and personal pensions will continue to get their personal contributions grossed up by 20%. This doesn’t change.
But it will mean that more taxpayers will need to complete a tax return to get the additional 1% relief against their other income. Many taxpayers in the new 21% intermediate bracket may need to complete a tax return perhaps for the first time. This could see them claim up to £202.73 in extra tax relief.
Salary sacrifice
Where contributions are paid through salary sacrifice, there's no need to complete a tax return to get the additional tax relief. This removes any extra admin burden for many workplace pension savers.
Net pay arrangements
Similarly those in occupational pensions where the contribution is taken before tax has been deducted will have no further to do. However, there will be a small number of pension savers in the new 19% starter rate band who contribute in this way who will only get relief at 19%. This will cost them at worst £20 a year in lost relief, but doesn’t materially change the relative merits of saving in a pension compared to other tax wrappers.
In summary
The new structure may look complicated at first glance, but the impact for pension saving is largely positive with minimal practical impact for most savers.
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