Income Tax Rates Remain The Same For 2022/23...But Personal Allowances Frozen by UK Budget

10th December 2021

The Scottish Parliament has the power to set the Income Tax rates and bands for the non-savings, non-dividend income of Scottish taxpayers, with the revenue received coming to the Scottish Government through the operation of the Fiscal Framework. Responsibility for the other parts of the Income Tax system, which includes reliefs and exemptions, and setting the UK-wide Personal Allowance, remains reserved to the UK Parliament. Income Tax on savings and dividends income is also reserved and continues to be paid to the UK Government.

Policy
Significant changes to Scottish Income Tax were implemented in the Scottish Budget 2018-19, delivering a fairer and more progressive five-band structure. As set out in the Programme for Government 2021-22, our aim is to maintain current Income Tax rates and increase thresholds by no more than inflation over the duration of this parliament.

In line with this aim, Scottish Income Tax rates will remain unchanged in 2022-23. The Starter and Basic Rate bands will increase by CPI inflation (3.1%). The Higher and Top Rate thresholds will remain frozen in cash terms at £43,662 and £150,000, respectively.

In the UK Autumn Budget (October 2021), the UK Government confirmed that the UK-wide Personal Allowance would remain frozen at £12,570 in 2022-23 (and until 2025-26). This will inevitably mean people paying an increasing amount of tax in coming years as the tax free amount is frozen..

Rates and Bands
Table 2.01: Scottish Income Tax Policy Proposals 2022-23
--------------------Band------Income Range--Rate
Starter Rate Over £12,570 - £14,732 19%
Basic Rate Over £14,732 - £25,688 20%
Intermediate Rate Over £25,688 - £43,662 21%
Higher Rate Over £43,662 - £150,000* 41%
Top Rate Over £150,000** 46%
* Assumes individuals are in receipt of the Standard UK Personal Allowance

** The Top Rate remains at 2021-22 level. Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000

As first set out in our paper The role of Income Tax in Scotland's Budget in November 2017, the Scottish Government's priority on Income Tax is to make the tax system fairer and more progressive, and to protect low- and middle-income taxpayers. At the time, we were clear that when living costs are rising, taxpayers in lower income brackets should not pay more tax, and this remains our priority. As we look ahead to 2022-23, inflation will continue to put pressure on living standards, with the impacts of rising energy prices likely to be felt by lower income families more than any other household.

Our Income Tax policy for 2022-23 therefore focuses on supporting those who are currently facing the most significant financial pressures, at the lower end of the income distribution. Our decision to increase the Starter and Basic Rate bands by inflation will maintain spending power across low- and middle-income households. Furthermore, the majority [54%] of taxpayers will continue to pay less Income Tax in 2022-23 than they would if they lived elsewhere in the UK.

According to SFC forecasts, freezing the Higher Rate Threshold will raise an additional £106 million in 2022-23. This policy only affects 17% of Scottish taxpayers, or 10% of all adults, and ensures we can continue to raise revenues to fund public services for all. Had we increased the Higher Rate Threshold by inflation, that would mean £106 million less to spend on priorities like our NHS and education system. Instead, those living in Scotland continue to have access to a wider and better funded range of free-to-access public services than elsewhere in the UK - including universal free prescriptions and tuition fees.

More information on the 2022-23 policy proposals, including a factsheet and analytical note, is available on the Scottish Government's website.