Following the introduction of the new Scottish rates of income tax, which came in to effect on 6 April 2018, it is worth remembering that the powers of the Scottish Government are restricted to setting rates and bands. They do not have the power to vary any actual income tax reliefs or rules.
HMRC have therefore published guidance outlining how five UK income tax reliefs will be applied to Scottish Tax Payers.
1. Marriage Allowance
Marriage Allowance currently allows UK taxpayers to transfer 10% of their tax-free Personal Allowance to their spouse or civil partner, reducing their tax bill by up to £238 in the 2018/19 tax year.
Scottish taxpayers will continue to claim Marriage Allowance using the prevailing RoUK basic rate of 20%.
2. Gift Aid
Gift Aid will continue to be paid to charities at 25p in the £1 - i.e., it will be calculated according to the RoUK basic rate.
Scottish taxpayers will be able to claim the correct amount of additional relief on top of this to reflect the tax paid by them under the Scottish rates of income tax.
3. Relief on Pension Contributions
The UK government confirmed that current processes will continue while it works with stakeholders to establish how this will work in the longer term.
There will be no changes to relief under the net pay method, where pension contributions are taken in to account before income tax is deducted.
The position is different for relief at source - where contributions are paid from after tax income, and grossed up within the taxpayer's pension pot. For the 2018/19 tax year Scottish taxpayers will continue to receive relief in their pension pot using the RoUK basic rate of 20%. There will be no adjustments for Scottish taxpayers taxed at a rate of less than 20%.
There will be scope for those Scottish taxpayers taxed at a rate higher than 20% to claim additional relief via self-assessment.
4. Social Security Lump Sum Pension
The UK government will make changes so that Scottish taxpayers who receive a social security pension lump sum will be taxed, where appropriate, at the new Scottish starter rate of 19%.
5. Finance Cost Relief
Mortgage interest deductions for landlords (now referred to as Finance Cost Relief following restrictions introduced from April 2017) will continue to be calculated using the RoUK basic rate of 20%.
It is worth noting that this only affects individual landlords who are Scottish taxpayers, but will apply irrespective of whether the let property is located in Scotland or elsewhere in the UK.
To see the HMRC guidance, click here.
For more information on Scottish taxpayers, click here.