Who qualifies as a Scottish taxpayer and how have the rules changed?

Devolving some powers over income tax to the Scottish parliament has created not only a divergence with the rest of the UK, but also raised a number of questions about defining a Scottish taxpayer. Alan Turner provides this handy guide 

What income is subject to the Scottish rates and bands?

The Scottish income tax rates and bands apply to relevant income (broadly, non-savings and non-dividend income) of Scottish taxpayers.

Interest and dividend income of Scottish taxpayers remains subject to income tax based on the main UK rates and bands.

Who is a ‘Scottish taxpayer’?

The criteria for being a ‘Scottish taxpayer’ will change slightly from 2019/20.  The summary below is based on the position from 6 April 2019.

An individual will be a ‘Scottish taxpayer’ if they:

■   Are UK resident for income tax purposes; and

■   Either:

– Have a ‘close connection’ with Scotland based on the location of their place of residence; or

– Do not have a ‘close connection’ with any of England, Northern Ireland, Scotland or Wales based on place of residence, but spend more days in Scotland than in any other individual part of the UK (i.e. England, Northern Ireland and Wales, each considered separately). 

An individual will be a ‘Scottish taxpayer’ – or not – for the whole of each relevant UK tax year.         

What is a ‘close connection’ with Scotland? 

If an individual’s sole place of residence in the UK during a particular tax year is in Scotland, they will have a ‘close connection’ with Scotland and therefore be a ‘Scottish taxpayer’.

If an individual has more than one place of residence in the UK during a particular tax year (e.g. if during that year the individual moves house or owns a second residential property), they will be a ‘Scottish taxpayer’ if their main place of residence is located in Scotland for longer than it has been located in any other individual part of the UK (i.e. England, Northern Ireland and Wales) each considered separately).

When does day counting apply to identify Scottish taxpayers?

Individuals who are resident in the UK for tax purposes but do not have a sole or main place of residence there will need to count the days spent in each part of the UK in order to determine whether or not they are subject to the Scottish rates on relevant income.

Relevant individuals will be ‘Scottish taxpayers’ in a particular tax year if they are present in Scotland for more days than they are present in any other individual part of the UK (i.e. England, Northern Ireland and Wales, each considered separately).

The day counting test might apply to individuals who, for example, spend 183 days or more in the UK during a particular tax year in a succession of places of temporary accommodation.

Moving between Scotland and another part of the UK

For individuals whose sole or main place of residence changes to or from Scotland during the course of a tax year, it might not be possible to confirm whether or not they are ‘Scottish taxpayers’ until after that year has ended.

As ‘Scottish taxpayer’ status applies for the whole of a particular tax year, the amount that such individuals have paid via PAYE for that year might not correspond to their final income tax liability.

In these circumstances, any under or over payment of income tax would be addressed via the Self-Assessment system or a PAYE coding adjustment.

HMRC’s detailed technical guidance is available here.

The rates and bands for 2019/20

Band	Range*	Maximum taxable income	Rate
Starter	Above £12,500 to £14,549	£2,049	19%
Basic	Above £14,549 to £24,944	£10,395	20%
Intermediate	Above £24,944 to £43,430	£18,486	21%
Higher	Above £43,430 to £150,000	£106,570	41%
Top	Above £150,000	N/A	46%

 

* The ranges of relevant income assume entitlement to a full standard Personal Allowance (which is set each year by the UK Parliament).  The Personal Allowance is reduced by £1 for every £2 of income that exceeds £100,000.

 

Alan Turner is Head of Tax for KPMG in Scotland