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Scotland Implements New Income Tax Changes for 2024-25

Income tax changes for Scotland in 2024-2025
© Thomas Chizzali

The new financial year began in Scotland on April 6th, 2024, ushering in significant changes to the income tax system. These reforms aim to create a fairer tax structure, raising additional funds for public services while ensuring those on lower incomes are protected.

A key feature of the overhaul is the introduction of a new “Advanced” tax band. This band applies a 45% tax rate to annual income between £75,000 and £125,140. Additionally, the top rate of tax for income exceeding £125,140 has seen a slight rise of 1 pence to 48%.

Importantly, tax rates for those earning under £75,000 will remain unchanged. The Starter and Basic rate bands, applicable to the lowest income brackets, have been adjusted for inflation to reflect rising costs. The Higher rate threshold, the point at which income starts being taxed at the higher rate, also remains frozen at £43,662.

The Scottish Fiscal Commission, an independent body, predicts these changes will generate an estimated £18.8 billion in income tax revenue for the 2024–25 financial year. This additional revenue is earmarked for investment in vital public services across Scotland.

The Scottish Government is urging all taxpayers to verify their tax codes on their first payslip for the new financial year. A tax code that begins with “S” indicates someone is paying Scottish income tax. Ensuring an accurate code guarantees individuals are paying the correct amount based on their earnings.

Deputy First Minister Shona Robison emphasised the progressive nature of Scotland’s income tax system. “Only 5% of Scottish taxpayers will face a higher tax rate this year,” she stated, highlighting that the majority will continue to pay less than their counterparts in other parts of the UK. Benefits of the new tax regime will include the funding of free prescriptions for medications and free tuition for higher education. Additionally, council tax, a local property tax, is generally lower in Scotland than in England, with an additional freeze implemented for the 2024–25 year.

The Scottish Fiscal Commission estimates that the combined effect of Scottish Government income tax policies implemented since 2017 will generate an additional £1.5 billion in 2024–25 compared to mirroring UK tax policies.

It’s important to note that policies related to National Insurance contributions and the Personal Tax Allowance remain under the control of the UK Government. Scottish Ministers continue to advocate for the devolution of further tax powers, allowing the Scottish Parliament to make tax decisions directly impacting the people of Scotland. Notably, the UK Government confirmed in its 2023 Autumn Statement that the UK-wide Personal Tax Allowance would remain frozen at £12,570. However, under UK policy, those earning over £100,000 will see their Personal Allowance gradually reduced for every £2 earned above that threshold.

Scotland’s new income tax structure represents a significant shift away from the rest of the UK. While higher-income earners face increased tax burdens, the majority of taxpayers are shielded from such changes. The additional revenue generated is intended to bolster public services, ultimately benefiting all residents of Scotland. With accurate tax codes being crucial for proper deductions, the Scottish Government encourages everyone to verify their payslips in the new financial year.