Applying 'English Votes for English Laws' to Income Tax
Published 16 March 2016
© Crown copyright 2016
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Who is likely to be affected
Income Tax payers, employers and pension providers.
General description of the measure
This measure separates the rates that apply to savings income from the main rates of Income Tax.
It will also create a default rate of Income Tax on ‘non-savings, non-dividends’ income (ie employment income, pension income, property income and trading income) that will apply to, but is not limited to, trustees and non-residents.
Policy objective
The policy objective of this measure is to meet the government’s commitment to ensure that the ‘English Votes for English Laws’ (EVEL) procedure can apply to the main rates of Income Tax.
Background to the measure
In April 2017, the UK government will devolve the power to set the rates and thresholds that apply to the ‘non-savings, non-dividends’ income of individuals resident in Scotland to the Scottish government. This will mean that members of the Scottish Parliament will have the final say on Scottish Income Tax.
Following the devolution of income tax to Scotland, the existing UK-wide main rates of income tax applied to ‘non-savings, non-dividends’ income will no longer apply in Scotland. However, without any further changes, Scottish MPs will continue to play their existing role in approving these rates in the UK Parliament.
The measure will separate out the ‘main rates’ of Income Tax that apply to ‘non-savings, non-dividend income’ into 3 rates:
- the ‘main rates’ will continue to apply to ‘non-savings, non-dividends’ income, such as employment, pensions and property income
- the ‘savings rates’ will apply to savings income
- the ‘default rates’ will apply to a very limited category of income taxpayers that will not fall within these 2 groups, made-up primarily of trustees and non-residents
This will ensure that the UK’s ‘main rates’ of Income Tax on ‘non-savings, non-dividends’ income correspond to the rates that have been created in Scotland, with the effect that English, Welsh and Northern Irish MPs have a decisive say on the main rates of Income Tax from Finance Bill 2017 onwards.
Detailed proposal
Operative date
The measure will have effect on and after 6 April 2017, to coincide with the further devolution of Income Tax powers to the Scottish government, as agreed by the Smith Commission.
Current law
The UK Income Tax rates currently apply across the whole of the United Kingdom to non-savings, non-dividends income, dividend income and savings income.
From 6 April 2016, the Scottish Parliament will have power to set the rates of Income Tax on non-savings, non-dividend income for Scotland taxpayers, by the UK main rates plus or minus 10%. This is known as the Scottish rate of Income Tax (SRIT).
From April 2017, the Scottish Parliament will have full control over rates and thresholds of Income Tax for non-savings and non-dividend income of Scottish taxpayers.
The law outlining the UK main rates and the SRIT is included in Chapter 2 of Part 2 of the Income Tax Act 2007 (ITA).
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to amend Chapter 2 of Part 2 of ITA to separate savings income from non-savings, non-dividend income so that the rates which currently apply to UK wide savings (basic, higher and additional) will become the:
- savings basic rate
- savings higher rate
- savings additional rate
The UK main rates will apply to the non-savings, non-dividend income of any individual that is both resident in the United Kingdom and not subject to the Scottish or default rate of Income Tax.
A default rate of Income Tax will be introduced into chapter 2 of part 2 of the ITA.
The default rate will apply to any taxpayer that is not subject to the UK main rates or the Scottish rates of Income Tax, and will be charged on non-savings, non-dividend income.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer Impact.
Economic impact
This measure is not expected to have any economic impacts.
Impact on individuals, households and families
This measure is not expected to have any impact on individuals or households. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure affects taxpayers equally.
Impact on business including civil society organisations
This measure is expected to have no impact on businesses and civil society organisations.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
There will be no significant operational impact on HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected from tax returns and receipts.
Further advice
If you have any questions about this change, please email: incometax.structure@hmrc.gsi.gov.uk.