The UK income tax rates currently apply across the whole of the UK to non-savings, non-dividends income, dividend income and savings income. From 6 April 2016, the Scottish Parliament will have the power to set the rates of income tax on non-savings, non-dividend income and dividend income for Scottish taxpayers, based on the UK rates plus or minus 10%.
From April 2017, the Government will completely devolve the power to set the rates and thresholds that apply to non-savings, non-dividends income of individuals resident in Scotland to the Scottish Government, meaning that the Scottish Parliament will have the final say on the level of Scottish Income Tax.
Without further changes to the statute, Scottish MPs would still be involved in approving the income tax rates for the rest of the UK.
Legislation will be introduced to separate the main rates of Income tax that apply to ‘non-savings, non-dividend income’ into three rates:
- Main rate: applicable to ‘non-savings, non-dividends’ income such as employment, pensions and property income
- Savings rate: applicable to savings income
- Default rates: applicable to limited categories of income taxpayers such as trustees and non-residents.
This amendment is principally procedural to ensure that English, Welsh and Northern Irish MPs have the final decision on the main rates of income tax for the rest of the UK, from Finance Bill 2017 onwards, following the creation of the Scottish income tax.