Looking Into The Future – Personal Taxation In Scotland

In the event of a Yes vote in the independence referendum, Scotland will have the power to create its own system of taxation and will need to provide for its own collection of taxes. In the event of a No vote, it is highly likely that further tax-raising powers will be devolved to the Scottish Government in Holyrood. In the meantime, uncertainty exists as to what the future tax regime in Scotland will involve, with greater clarity expected to emerge once the result of the referendum is known and following the UK general election in 2015 and the Scottish general election in 2016.

Existing measures for change

The Scotland Act 2012 has already provided for increased tax raising and spending powers for the Scottish Parliament. April 2016 will see the introduction of the "Scottish Rate" of income tax. This applies to taxpayers with a substantial connection to Scotland and sets the rate to be charged on non-savings income - in most cases, earnings.

The Scottish Rate operates by a reduction in the UK basic (20%), higher (40%) and additional (45%) rates by 10 pence in the pound and adding a new Scottish rate set by the Scottish Parliament. For example, if the Scottish Rate is increased to 12%, the rates will become 22%, 42% and 47%. If the Scottish Rate is reduced to 9%, the rates will become 19%, 39% and 44%. A Scottish Rate of 10% would mean no change from the UK rates.

It will take, of course, a decision by a future Scottish Government to set a rate of income tax that deviates from the rest of the UK. The provisions will also give rise to complexity of administration not just for taxpayers themselves but for employers and pension payers. Taxpayers will need to review whether they are based in Scotland or elsewhere for the purpose of the Scottish Rate.


The Scottish Government in its White Paper "Scotland's Future" identified the reduction of corporation tax by 3 percentage points as a priority. Very little detail was revealed as to what the future may hold for individual taxes, where it stated that "Until such times as tax rates are changed by a future Scottish government, they will remain the same as the prevailing rate in the UK. Future Scottish governments may wish to vary tax rates and/or thresholds for a variety of reasons."

Some realignment within Scottish politics could take place in the event of a Yes vote, which may have consequences for the tax system in Scotland. From what unionist parties are saying they would support in...

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