Two-tier system: How new tax changes affect Scots

A Scottish taxpayer who is in exactly the same circumstances will have employment tax that increases when employment income reaches £43,000, from 32 per cent (20 per cent income tax plus 12 per cent NI) to 52 per cent (40 per cent income tax plus 12 per cent NI), before dropping back to 42 per cent (40 per cent income tax and 2 per cent NI) when employment income reaches £45,000. 

Pension tax relief

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Personal, employee and third- party pension contributions receive tax relief based on the basic rate of tax. 

Although this is currently the same, it is possible that in future the basic rate of tax for Scottish taxpayers could be different from the UK basic rate. This would not change the entitlement to tax relief, but it would complicate the way in which the tax relief is paid on contributions to Relief at Source pensions, such as personal pensions. 

The current guidance from HM Revenue & Customs is that the pension scheme would have to apply the UK rate unless, before the first contribution of the tax year, HMRC has informed the pension scheme that the Scottish rate should be applied.

The individual would need to sort out any difference in the rate applied with HMRC at the end of the tax year. See Box Five. Although the differences in personal taxation between Scottish taxpayers and taxpayers in the rest of the UK may currently have a relatively small financial impact, it is clear that this difference will cause significant complication.

Phil Warner is head of technical at Hargreaves Lansdown