3rd April 2026
The income tax system has changed a lot over the last parliament, with the introduction of new tax bands and changes to both rates and thresholds. These changes go against the SNP's 2021 manifesto promise to freeze both income tax rates and bands.
We'll go through these changes, and what they mean for the taxes paid by people in Scotland compared to the rest of the UK.
Changes to rates and thresholds
At the start of the parliamentary term, Scotland operated a five-band income tax system - more bands than the three-band system in the rest of the UK.
In the 2023-24 budget, the higher rate increased from 41% to 42% and the top rate from 46% to 47%, while the top rate threshold decreased from £150,000 to £125,140. The 2024-25 budget introduced the most significant structural change: a new, sixth income tax band. The 45% advanced rate was introduced, applying to income between £75,001 and £125,140.
Thresholds for lower income bands - affecting those on lower and middle incomes - have increased in recent budgets, broadly keeping pace with inflation. However, thresholds for the higher rate and above have remained frozen.
Comparison with the rest of the UK
These changes have widened the differences between the Scottish income tax system and the one operating in the rest of the UK.
Lower earners benefit slightly in Scotland. Individuals earning below the median income pay a little less tax than they would elsewhere in the UK, largely because of Scotland's 19% starter rate (compared with the 20% UK basic rate). This applies to incomes between £12,571 and £16,537, and results in a maximum annual saving of £40 (around 76 pence per week).
However, middle and higher earners pay more. Anyone earning above £29,526 per year pays more income tax in Scotland than they would in the rest of the UK.
The starkest difference is visible when income tax is considered alongside National Insurance contributions (NICs). NICs are set by the UK Government and apply consistently across the whole of the UK.
The above are excerpts from an article published by Fraser of Allender Institute
Read the full article HERE