An increase to the two highest rates of income tax and a reduction in the band at which Scottish taxpayers can expect to pay the top slice of income tax as announced in the Scottish Budget on 15 December 2022, comes in to effect from 6 April 2023. The changes are as follows:

• The previous threshold at which taxpayers would pay the top slice of income tax from will be reduced from £150,000 down to £125,140 as from 6 April 2023.

• Scottish taxpayers will see an increase in the top rate of income tax from 46% to 47% for those earning over the reduced threshold of £125,140 – this threshold is the same for the whole of the UK

• The higher rate of income tax levied on those earning between £43,663 and the reduced threshold of £125,140 will rise from 41% to 42%

• The personal allowance will remain at £12,570 for the whole of the UK, and will be frozen until 2028. This allowance is only available to those with income below the highest threshold of £125,140.

The changes from 6 April 2023 continues to widen the disparity between the levels of tax paid by Scottish taxpayers and taxpayers elsewhere in the UK. As an example, a Scottish taxpayer who earns £50,000 per year will have an additional income tax burden of approximately £1,500 compared to a taxpayer living in England.

As mentioned, the top rate threshold has been lowered for the whole of the UK, however, Scottish taxpayers are subject to an additional 2% on both the higher and top rates of income tax.

A Scottish taxpayer earning a salary of £200,000 will pay £81,061 in income tax from 6 April 2023 whereas elsewhere in the UK, the income tax liability on a £200,000 salary would be £76,203; which is £4,858 less than a Scottish resident taxpayer.

For Scottish taxpayers there is a 19% starter rate band for earnings between £12,571 and £14,732. For those on lower incomes whose earnings fall within this starter rate band, this reduces the tax burden by approximately £22 compared to those elsewhere in the UK.

Capital Gains Tax Annual Exemption

In the Autumn Statement on 17 November 2022, the Chancellor, Jeremy Hunt announced changes to the annual Capital Gains Tax (CGT) exemption from 6 April 2023 for the 2023/2024 and 2024/2025 tax years.

The current (2022/2023 tax year) annual CGT exemptions are £12,300 for individuals and personal representatives and £6,150 for Trustees.

From 6 April 2023, the annual CGT exemption will be reduced to £6,000 for individuals and personal representatives and £3,000 for Trustees.

From 6 April 2024, the Chancellor announced that the annual CGT exemption would be permanently fixed at £3,000 for individuals and personal representatives, and £1,500 for (most) Trustees.

The rates of capital gains tax payable remain unchanged at 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers, Trustees and Personal representatives disposing of residential property. For other gains, the rates remain at 10% for basic rate taxpayers and 20% for higher rate and additional rate taxpayers, Trustees and personal representatives.

The measure also fixed the reporting limit for proceeds for CGT purposes at £50,000. Previously the reporting limits were set at four times the annual CGT exemption in the specific tax year the disposal occurred.

Tax Free Dividend Allowance

Also in the Autumn 2022 Budget, the Chancellor announced that from 6 April 2023, the tax-free dividend allowance for dividend income would be reduced from the current tax year (2022/2023) allowance of £2,000 down to £1,000. This allowance will be reduced further in the following tax year with investors entitled to only a £500 tax free dividend allowance form 6 April 2024.

The rates of income tax paid by investors on their dividend income over and above the tax free dividend allowance is determined by which tax band their income falls into. For example, a basic rate taxpayer will be subject to an income tax charge of 8.75%, 33.75% for higher rate taxpayers and 39.35% for additional rate.

Additional Dwelling Supplement (ADS)

ADS is an additional charge which is payable by those who buy an additional residential property (dwelling) in Scotland with a value of £40,000 or more. This includes:

• a second home

• a rental property

• a holiday home

• properties used by family and friends even if a rent is not charged

Prior to the Scottish Budget on 15 December 2022, the rate of ADS was 4%, with effect from 16 December 2022, this rate was increased to 6%.


Laura Brown

Director of Personal Tax