DECEMBER 2020
EDITION

VIEW ONLINE
SUBSCRIBE

Register with PP

Newsletter, Jobs & Event Alerts

Latest

HMRC confirms how Scottish income tax will work

21 February 2018

HMRC has confirmed how pension tax relief will work for Scottish taxpayers following an overhaul of Scotland’s income tax system.

The Scottish Government announced the creation of two new tax bands (‘starter rate’ and ‘intermediate rate’) in December 2017, the first time the Scottish Government has set different tax rates to the rest of the UK. This proposed and increase to the higher and additional income tax rates from April 2018.

Pension savers in Scotland will be affected as they currently receive pension tax relief at their marginal rate.

Explaining how the new system will work in practice, Tom Selby, senior analyst at AJ Bell, says: “Members of schemes which apply tax relief after they have paid income tax – known in the jargon as ‘relief at source’ – will be affected in different ways. Savers will still receive tax relief automatically at the basic rate of 20%, and those falling into the starter rate (£11,850 – £13,850) and basic rate (£13,850 – £24,000) bands won’t have to do anything in order to receive the tax relief they are due.

“However, anyone who falls into the new intermediate band (£24,000 – £43,430) will need to tell HMRC in order to get the extra 1% of tax relief they are entitled to. Many of these people will never have filled out a tax return before and may well question whether it’s worth the hassle.

“Someone earning £30,000 and contributing 10% of their salary would pay in £2,400 over the course of a year, receive tax relief at source of £600 and can then reclaim an extra £30.  While this might not sound like a lot, over the course of a lifetime that could add up to thousands of pounds.

“Higher and additional-rate taxpayers will continue to apply for their tax relief through self-assessment, as they do at the moment. People in these tax brackets will have an extra reason to save in a pension though as they get an additional 1% in tax relief under the new framework.”

Net pay

Selby adds: “Some pension schemes operate pension tax relief on a ‘net pay’ basis. This simply means pension contributions are deducted before income tax is applied to their pay. These arrangements have caused controversy in the rest of the UK because people who pay no income tax do not receive a pension tax relief top-up automatically.

“HMRC has confirmed these schemes will continue to operate in the same way north of the border as they do now under the new tax regime.”


Source: AJ Bell

Do NOT follow this link or you will be banned from the site!