Scottish income tax higher rate threshold frozen

08 February 2017

In December 2016 the Scottish Government published their draft finance Budget which proposed that the higher rate of income tax threshold would increase by inflation to £43,430 in 2017-18.

However in a recent announcement the Finance Secretary Derek Mackay confirmed that a revised higher threshold (to be frozen at the current £43,000 level) forms part of an agreement with the Scottish Green party that secures the passage of the Scottish budget and Local Government Settlement.

As per the table below the basic, higher and additional rates of income tax are proposed to stay the same as the rest of the UK (rUK).


Income tax rates

Scottish bands

 rUK bands

Scottish Basic rate 20 per cent

Above £11,500* up to £43,000

 Above £11,500* up to £45,000

Scottish Higher rate 40 per cent

Above £43,000 up to £150,000

 Above £45,000 up to £150,000

Scottish Additional Rate 45 per cent

Above £150,000**

 Above £150,000**

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

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


Basic rate taxpayers who move into the higher rate band under the proposals for Scotland, but who would have remained basic rate taxpayers in the rest of the UK, will pay around £400 more tax and National Insurance (NI) per year in 2017-18, as will all existing higher and additional rate taxpayers. These individuals will pay a 52 per cent marginal rate on tax and NI on the £2,000 difference (40 per cent tax, 12 per cent NI). However the increase of £500 in the personal allowance to £11,500 will, in part, offset the increase in income tax between the basic and higher rate threshold.

The revised proposals are still subject to Scottish Parliamentary approval.


CIPP comment

HMRC recently published the P9X, containing rates, thresholds and tax code increases required by employers and payroll providers, enabling them to prepare their payroll records and tax codes for the tax year commencing 6 April 2017.  

The Scottish income tax rates and thresholds shown in the P9X were those announced in the Draft Scottish Budget in December.  

In an update from HMRC’s SDS Team they have said that until the tax rates and thresholds are confirmed by the Scottish Parliament, HMRC will not know the correct figures to use for Scottish taxpayers for the 2017-18 tax year.

HMRC realise this will impact on finalising 2017-18 software products and have assured us and software developers that they will advise of the correct figures as soon as they are ratified by the Scottish Parliament.

The Scottish Government has advised that the Scottish Parliament is currently scheduled to agree these in the week commencing 20 February.