Personal Tax

Personal allowances and tax reliefs

In Scotland, income tax is a partially devolved tax. 

The Scottish Government is responsible for setting the rates and bands each year for non-saving income. The Scottish Rate of Income Tax (SRIT) currently applies only to non-savings income. Non savings income includes employment, pensions, self-employment and property income. 

All savings and investment income remains taxable at the rates and tax bands set by the UK Government and is expected to remain so for the foreseeable future. 

If you are a UK resident who splits their time between Scotland and the rest of the UK, you should consider your position carefully and make sure the facts reflect and support your intentions when declaring whether you are a Scottish taxpayer or not. 

Tax rates for 2021/22 are:

Taxable incomeBandRates
0 to £2,097Starter19%
£2,098 to £12,726Basic20%
£12,727 to £31,092Intermediate21%
£31,093 to £150,000Higher41%
Over £150,000Top46%

Low earners will pay less tax than the rest of the UK, although those with income above £27,392 will pay more. However, all Scottish taxpayers will pay slightly less tax compared to the current year.

Income tax rates will remain the same but the threshold where the upper rate kicks in will be frozen. The starter rate (10%) and basic rate (20%) band thresholds have been increased by inflation.

The UK Government continue to set the rates for all other income and allowances and reliefs that apply. Your personal allowance, along with the other allowances such as those applicable to savings and dividends are set by the UK Government and apply to Scottish taxpayers on the same basis as all UK taxpayers.

>UK Business and Personal Tax Rates 2021-22

Income tax and your personal allowance

The starting point in tax planning is to understand where your income is likely to fall relative to the tax thresholds. In the Spring 2021 budget, renamed the big freeze, the Chancellor announced Income tax and National Insurance remain frozen for 2021-22. 

Where the personal allowance is available, it is phased out on income between £100,000 and £125,000. This results in an effective tax rate of up to 60% (61.5% for Scottish residents) within this income bracket. 

It may be possible to reduce taxable income through pension contributions and eligible charitable donations. The personal allowance is not available to non-UK domiciled individuals who claim the remittance basis.

Income tax saving for couples

Switching income from one spouse or partner to the other can help save tax – may be even more important this year.

Always aim to use both individuals’ personal allowances (£12,570 in 2021/22) and minimise any higher and additional or top rate tax.

  • Income over £150,000 is currently taxed at 45%, or 46% for non-savings, non-dividend income in Scotland.
  • The personal allowance is withdrawn where income (less certain deductions) is more than £100,000. 
  • You might be able to reorganise both of your financial affairs to avoid exceeding one of these limits – CGT may be payable on switching ownership of an investment if you are not married or in a civil partnership.

If you are also a director of a company, you can receive £2,000 of dividends tax free in 2021/22 regardless of your tax status. 

Reorganising your shareholdings between you may make better use of this limit. You can also receive £1,000 of savings income tax free if you are a basic rate taxpayer, and £500 if paying tax at the higher rate. 

If you or your partner have little or no earnings or pension income, you might also benefit from a 0% tax rate on up to a further £5,000 of savings income. Shifting assets between you can help minimise tax on your savings income. A £1,000 tax-free allowance is available for income from property, such as where a parking space is let out, so joint ownership could result in a modest tax saving.

If one spouse or civil partner will not be able to use their personal allowance for 2021/22, then claiming the marriage allowance will save the other spouse/civil partner up to £250 in tax. 

However, a claim can only be made if the recipient does not pay tax above the basic rate. Claims can be backdated for four tax years, so the advantage of making a claim by 5 April 2022 is the inclusion of 2017/18.

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Our Personal Tax Expert Simon Murrison

Simon, co-director and Chartered Accountant has worked with SMEs and owner managed businesses for 25+ years.

Simon advises on all aspects of accountancy, tax and year-end reporting to Companies House and HMRC, cloud bookkeeping systems and good financial management.