On the go: While the recent Scottish Budget means that many people north of the border will be paying substantially more income tax than someone on equal earnings in the rest of the UK, there is a pensions tax relief 'silver lining'.
On December 12 2018 the Scottish government announced revised income tax rates and bands for 2019-20 leaving the higher-rate tax threshold unchanged at £43,430, which is £6,570 lower than in the rest of the UK.
This is not set in stone, however, as the minority Scottish government needs the backing of other Scottish parties to ‘pass’ its Budget.
Despite the fact that residents of England and Wales from next April earning up to £50,000 will not pay higher-rate income tax as a result of changes in the chancellor’s October Budget, income tax bands and rates are ‘devolved’, so this does not apply to workers in Scotland.
“The one silver lining concerns pensions tax relief, which is granted at the individual’s highest marginal income tax rate,” said Steven Cameron, pensions director at Aegon.
He said this means someone in Scotland earning £49,999 will be entitled to up to 41 per cent tax relief on their pension contributions, whereas someone earning the same in the rest of the UK would be entitled to only 20 per cent tax relief. For the same individuals in Scotland, a pension contribution of £6,570 would see them avoid paying higher rate tax entirely.
Cameron noted that "some employers will also allow individuals to ‘sacrifice’ part of their salary in return for this being paid as an employer contribution into their pension. This has the further benefit of meaning the individual doesn’t pay NI on the amount sacrificed. Someone earning £49,999 paying pensions contributions through salary sacrifice could save not only 41 per cent income tax but also 12 per cent national insurance.”
