The Scotland Act 2012 introduced the Scottish Rate of Income Tax (SRIT). This gives the Scottish Parliament power to set Income Tax rates for Scottish taxpayers. It is due to come into effect from April 2016. It will impact employers and employees throughout the UK, not just in Scotland.
Who does it apply to?
All individuals identified as ‘Scottish taxpayers’ will be liable.
A Scottish taxpayer is defined as someone who is resident in the UK for tax purposes and, in the course of the tax year, satisfies any of the following criteria:
1. They are a Scottish Parliamentarian. (MPs of a Scottish constituency, MSPs or MEPs for Scotland).
2. They have a “close connection” to Scotland through either:
a. Having only a single “place of residence”, which is in Scotland.
b. Where they have more than one “place of residence”, having their “main place of residence” in Scotland for at least as much of the tax year as it has been in any other part of the UK.
3. Where no “close connection” to Scotland (or any other part of the UK) exists – through day counting – if the individual spends at least as many days in Scotland as elsewhere in the UK.
For the vast majority, this will be a relatively straightforward conclusion to come to. However, given the location of many of our clients, we are expecting there to be some unique scenarios which we will be happy to advise upon.
Scottish taxpayer status applies for a whole tax year; it is not possible to be a Scottish taxpayer for part of a tax year.
How will it operate?
SRIT applies by reducing the rate of UK income tax on non-savings income by 10% across the basic, higher and additional rates of income tax and then adding on the Scottish rate applicable for the year. Therefore, should Scotland choose a rate of 10%, Scottish taxpayers will pay the same level of tax as the rest of the UK. Any rate less than 10% will result in Scottish taxpayers paying less, and anything higher will result in Scottish tax payers paying more.
It is worth noting that SRIT does not apply to partnerships, but individual partners who are Scottish taxpayers will need to pay SRIT on their own income.
It is expected that Scottish taxpayers will receive Scottish tax codes to ensure the correct tax is deducted at source for employment /pension income etc.
For the foreseeable future trusts are to retain their current UK or Non-UK residence status and be taxed at UK rates where appropriate. However, trusts and estates with income arising to, or received by an individual Scottish beneficiary would be chargeable to the SRIT. The rules are dependent upon the type of trust.
In conclusion, the SRIT will affect many of Greaves West and Ayre’s clients given its Scottish Borders and North Northumberland location. Should you wish to discuss how it affects you, please do not hesitate to get in touch.