Guidance

Scotland Act 2012

The Scotland Act 2012 gives the Scottish Parliament the power to set a Scottish rate of income tax and to raise taxes on land transactions and waste disposal to landfill.

Scotland Act 2012

The Scotland Act 2012 gives the Scottish Parliament the power to set a Scottish rate of income tax to be administered by HM Revenue & Customs (HMRC) for Scottish taxpayers. It is expected to apply from April 2016. The Act also fully devolves the power to raise taxes on land transactions and on waste disposal to landfill – it is expected that this will take effect in April 2015, at which point the existing Stamp Duty Land Tax and Landfill Tax will not apply in Scotland and will be replaced with Land and Buildings Transaction Tax and Scottish Landfill Tax. The act also provides powers for new taxes to be created in Scotland and for additional taxes to be devolved.

For employees and pensioners, the Income Tax change will be applied through PAYE (Pay As You Earn). HMRC will issue tax codes to employers in the months before April 2016 which will identify those employees who are Scottish taxpayers, and employers will deduct tax at the appropriate rates, which may be higher or lower than or the same as those which apply in the rest of the UK. The definition of a Scottish taxpayer is based on the location of an individual’s main place of residence – further guidance will be available in due course.

Where to get more Information

Scotland Office

The Scotland Office plays an essential role in managing day-to-day devolution issues between Westminster and Holyrood. The Scotland Office liaises across a wide range of Whitehall departments to both promote and guard the devolution settlement, as well as having regular engagement with key stakeholders in Scotland on a broad range of issues which are reserved to Westminster.

The Scottish Parliament

The Scottish Government

Scotland Act 2012 – Frequently Asked Questions

Scottish Rate of Income Tax

What is the Scottish Rate of Income Tax?

It is a power that the Scottish Parliament will have to affect the amount of income tax that Scottish taxpayers pay and (as a result) the amount that the Scottish Government has to spend in Scotland.

How will the Scottish rate of income tax work?

A proportion of the income tax paid by all Scottish taxpayers will go to fund spending by the Scottish Government. The Scottish Parliament will be able to set the rates of income tax lower or higher than the rates that apply in the rest of the UK. If they set a different rate it will apply to all the income tax rates – the basic rate, the higher rate and the additional rate will all go up or down by the same percentage, relative to the UK rate.

When will the Scottish Rate of Income Tax start?

The Scottish Rate of Income Tax will apply from 6 April 2016 – that is from the 2016 to 17 tax year onwards.

What are the main UK rates of tax?

For the 2015 to 2016 tax year they are currently: basic rate 20%; higher rate 40%; and additional rate 45%.

Will the Scottish Rate of Income Tax make taxes higher or lower in Scotland than in the rest of the UK?

This depends on decisions made by the Scottish Parliament, who can make income tax in Scotland higher, lower or the same as elsewhere in the UK.

How will the Scottish rate of income tax be calculated?

Using the 2015 to 2016 UK income tax rates as the example, each will be reduced by 10% - making basic rate 10%; higher rate 30% and additional rate 35%. The Scottish Parliament will set a single rate which will be applied across the three reduced rates giving the Scottish rate.

What happens if the Scottish Parliament sets an Income Tax rate of 10%?

This would mean that the Income Tax rates for Scottish taxpayers are the same as for taxpayers elsewhere in the UK.

What happens if the Scottish Parliament sets an Income Tax rate less than 10%?

This would mean that the main Income Tax rates for Scottish taxpayers would be less than for taxpayers elsewhere in the UK. For example, if the Scottish Parliament sets a rate of 9%, the Scottish basic rate would be 19%, the Scottish higher rate would be 39% and the Scottish additional rate would be 44% (based on the current main rates for 2015 to 2016 tax year).

What happens if the Scottish Parliament sets an Income Tax rate more than 10%?

This would mean that the main Income Tax rates for Scottish taxpayers would be higher than for taxpayers elsewhere in the UK. For example, if the Scottish Parliament sets a rate of 11%, the Scottish basic rate would be 21%, the Scottish higher rate would be 41% and the Scottish additional rate would be 46% (based on the main rate for the 2015 to 2016 tax year ).

Who will the Scottish rate affect?

It will affect everyone who is a Scottish taxpayer. Broadly, if you reside in Scotland you are a Scottish taxpayer. Scottish people who do not reside in Scotland are not Scottish taxpayers.

How do I know if I am a Scottish taxpayer?

We shall be issuing more guidance about this nearer the time. We shall also be notifying those on our computer systems who appear to be Scottish taxpayers, based on the information we hold. If you pay tax through PAYE, HMRC will tell your employer whether to treat you as a Scottish taxpayer.

How will my employer know if I am a Scottish taxpayer?

Scottish taxpayers in Pay as you Earn (PAYE) who meet the criteria of Scottish taxpayer for the whole year will get a tax code that begins with S. This tax code will be sent to your employer to allow them to deduct the correct rate of income tax. Employers across the UK will upgrade their systems to cope with the new rules.

What if my employer is not based in Scotland?

All employers will have to operate the Scottish tax codes, so where your employer is based won’t affect the tax you pay.

Will my tax allowances be different if I am a Scottish taxpayer?

No. Under the provisions of the Scotland Act 2012 the Scottish Parliament will set a rate that will affect the main income tax rates for Scottish taxpayers, but they will not be able to change anything else about income tax.

How will the Scottish Rate of Income Tax affect tax on my savings?

It won’t. The rates of income tax on income from savings will be the same for taxpayers across the UK, including Scottish taxpayers.

How will the Scottish Rate of Income Tax affect tax relief on my pension contributions?

Scottish taxpayers will receive tax relief on their pension contributions at the Scottish rates. Pension scheme members who pay contributions to their employer’s pension scheme under the net pay arrangement, will automatically receive tax relief on their contributions at the Scottish rates. However, the system for giving relief at source (RAS) will not automatically provide the correct relief for Scottish taxpayers. The pensions industry will introduce changes to their systems to correctly account for such contributions however until these are in place pension scheme administrators will continue to claim tax relief at the UK basic rate of tax for all members; HMRC will identify Scottish taxpayers and make any adjustment (depending on the Scottish rate) direct with the scheme member. This will be done either through the Self Assessment process or PAYE coding.

How will the Scottish rate affect tax on my actual pension?

Pension income will be treated the same way as income from employment. A Scottish taxpayer will pay tax at the Scottish main rates.

If I move my pension from Scotland to somewhere else in the UK, will it affect the amount of tax relief that I get?

No. Pension providers in Scotland will apply exactly the same rules as providers elsewhere in the UK. A Scottish taxpayer will get the same amount of relief for contributions whether their pension is with a provider based in Scotland or one based elsewhere in the UK. Similarly, a taxpayer in England (for example) will get the same amount of relief whether their provider is based in Scotland or somewhere else in the UK, as the Scottish Rate of Income Tax is based on your main place of residence, not where the Pension Provider is located.

How will the Scottish Rate of Income Tax affect Gift Aid?

There will still be relief on contributions from Scottish taxpayers. The approach is set out in a technical note published May 2012.

Stamp Duty Land Tax (SDLT)

The Scotland Act fully devolves SDLT in Scotland, what does this mean?

From the date of devolution, 1 April 2015, SDLT will no longer apply to land and property transactions in Scotland. The Scottish Government is introducing Land and Buildings Transaction Tax (LBTT) to replace SDLT.

Who will administer LBTT?

The Scottish Government has set up Revenue Scotland to oversee the administration of Scotland’s devolved taxes. Registers of Scotland (the Scottish land registration agency) will also have a role in operating LBTT.

Who is affected by the changes to SDLT?

As the devolved tax will be charged on land transactions in Scotland, the changes will affect anyone purchasing Scottish land or property, whether resident in Scotland or elsewhere.

How is land in Scotland defined?

The devolved tax will apply to land within the administrative boundaries of Scotland, excluding land situated below mean low water mark.

How will you make sure that SDLT is not charged on land in Scotland?

The return for Stamp Duty Land Tax already includes a code identifying the local authority area in which land transactions take place. From 1 April 2015, returns giving a Scottish local authority code will be rejected by HMRC’s system.

How will cross-border transactions be treated?

Transactions (or linked transactions) which include land in Scotland and elsewhere in the UK will have to be split and the two taxes accounted for separately. This is in line with the existing practice for land registration, which is already dealt with separately in Scotland.

Landfill tax (LfT)

The Scotland Act fully devolves LfT in Scotland, what does this mean?

From 1 April 2015, LfT will no longer apply to disposals of waste to landfill in Scotland. The Scottish Government is introducing Scottish Landfill Tax (SLfT) to replace LfT.

Who will administer SLfT?

The Scottish Government has set up Revenue Scotland to oversee the administration of Scotland’s devolved taxes. The Scottish Environmental Protection Agency will also have a role in operating SLfT.

Who is affected by the changes to LfT?

As the devolved tax will be charged on disposals of waste to landfill, operators of landfill sites in Scotland will be affected by the change.

Published 19 January 2015
Last updated 26 August 2015 + show all updates
  1. Added Scotland Act Implementation Programme gateway review July 2013 and May 2014 and Scottish rate of Income Tax gateway review (delivery strategy) February 2014
  2. Scotland Act Implementation Programme gateway review July 2013 and May 2014 removed for review purposes
  3. Added Scotland Act Implementation Programme gateway review July 2013 and May 2014
  4. Added a link in the Where to get more information section to 'Scottish rate of Income Tax - technical guidance on Scottish taxpayer status'.
  5. Document added to the "Where to get more Information" section: Memorandum of Understanding between HM Revenue and Customs and Revenue Scotland - working arrangements covering the administration of Stamp Duty Land Tax and Land and Buildings Transaction Tax, and Landfill Tax and Scottish Landfill Tax.
  6. Added link to document 'Memorandum of understanding on the Scottish rate of income tax - Scottish Government and HM Revenue & Customs'
  7. First published.