The Scottish government has voted to overhaul its income tax system, introducing two new tax bands that will cut bills for more than 70% of people.
At the same time, an increase in the higher-rate band may see some Scots paying more tax in the coming tax year.
Which? explains how the new Scottish income tax system works and how much you’ll pay.
New Scottish income tax rates for 2018-19
As announced in December, the higher rate of tax will increase by a penny in the pound to 41% in the new tax year.
Earnings over £24,000 will also be charged 21% tax, slightly more than the 20% basic rate in the rest of the country.
But for many workers, these increases will be offset by a new 19% ‘starter rate’ on earnings between £11,850 and £13,850. Income between £13,850 and £24,000 will continue to be charged at 20%.
Below, we explain how the new rates work.
The changes come into effect at the start of the new tax year on 6 April 2018.
The Scottish government first announced its proposal in its December budget, but yesterday voted to pass the legislation.
Will Scottish taxpayers pay more?
It depends how much you earn.
According to Scottish finance minister Derek Mackay, 70% of taxpayers will pay less as a result of the changes, due to the new 19% band.
If you earn less than £33,000 in 2018-19, you’ll pay less tax than you did in 2017-18, the government has said.
But Scottish taxpayers may still be worse off than other UK residents. If you earn more than £26,000, you may end up paying more under the new Scottish tax system than you would in the rest of the UK.
Who pays Scottish income tax?
Whether you’ll pay tax through the Scottish system or the one in the place in the rest of the UK depends on where you live, not where you work.
This will be decided based on the location of main home – meaning where you live and spend most of your time.
If you own multiple properties, your main home may be defined as where your family lives (if you’re married or in a civil partnership), or where you’ve registered for services such as your GP, or bank account.
If you only live in Scotland for part of the year, you’ll pay Scottish rates for that part of the year. So if you live in Scotland for three months, one quarter of your income will be taxed under the Scottish system.
Scotland has had a separate income tax system since the 2017-18 tax year.
Find out more: income taxes in Scotland – how the current system works
How will the new system affect my tax return?
If you pay income tax through your employer or pension, under pay-as-you-earn (PAYE), you don’t need to do anything.
Provided your tax code starts with an ‘S’, the correct taxes should be calculated automatically, which you can check on your pay slip.
If you file a tax return, tick the box that says you pay under the Scottish system. Note that because the new taxes kick in in April 2018, the first tax return under the new system won’t be due until January 2020 for people who file online, and October 2019 for people who file a paper return.
Find out more: understanding your tax code – work out how much you will earn before paying tax