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  2017/18 2016/17 2015/16
 Basic rate band – income up to £33,500 £32,000 £31,785
 Starting rate for savings income 0%* 0%* 0%*
 Basic rate 20% 20% 20%
 Dividend ordinary rate 7.5% 7.5%** 0%
 Higher rate – income over £33,500 £32,000 £31,785
 Higher rate 40% 40% 40%
 Dividend upper rate 32.5% 32.5%** 25%
 Additional rate – income over £150,000 £150,000 £150,000
 Additional rate 45% 45% 45%
 Dividend additional rate 38.1% 38.1%** 30.60%

For 2016/17, Scottish taxpayers are effectively subject to the same income tax rates as the rest of the UK.

*If an individual's taxable non-savings income exceeds the starting rate limit, then the starting rate limit for savings will not be available for savings income. For 2016/17, £1,000 of savings income for basic rate taxpayers (£500 for higher rate) may be tax-free. **For 2016/17 the first £5,000 of dividends are tax-free. ***For 2016/17 the first £5,000 of dividends are tax-free

The Government has announced an increase in the basic rate limit for the 2017/18 tax year from £32,400 to £33,500. As a result, the higher rate threshold will be £45,000 in 2017/18.

Personal allowances (PA)

The personal allowance, including the minimum age-related allowance, is reduced by £1 for every £2 that net adjusted income exceeds £100,000.

 Personal Allowance (PA) 2017/18 2016/17 2015/16
 Personal Allowance £11,500 £11,000 £10,600

Other allowances

 Allowances 2017/18 2016/17 2015/16

 Married Couple's Allowance - maximum limit

£8,445 £8,355 £8,355

Married Couple's Allowance - minimum limit

£3,260 £3,220 £3,220
Blind Person's Allowance £2,320 £2,290 £2,290

 

Tax shelters

  2017/18 2016/17 2015/16
 Venture Capital Trust up to £200,00 £200,000 £200,000
 Enterprise Investment Scheme up to £1,000,000 £1,000,000 £1,000,000
 Seed Enterprise Investment Scheme up to £100,000 £100,000 £100,000
 Social Investment Tax Relief up to £1,000,000 £1,000,000 £1,000,000

 

Individual Savings Accounts (ISAs) and Child Trust Funds (CTFs)
2016/17 limits:

 Overall Investment limit £15,240
 Junior ISA and Child Trust Fund limit £4,080

 

Lifetime ISA

You can use a Lifetime ISA (Individual Savings Account) to buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA.

You can put in up to £4,000 each year, until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2017 to 2018 tax year.

You can hold cash or stocks and shares in your Lifetime ISA, or have a combination of both.

There’s a 25% charge to withdraw cash or assets from a Lifetime ISA. This doesn’t apply if you’re:

  • buying your first home
  • aged 60 or over
  • terminally ill, with less than 12 months to live

*To open and continue to pay into a Lifetime ISA you must be resident in the UK, unless you’re a crown servant (for example, in the diplomatic service), their spouse or civil partner.

Buying your first home
You can use your savings to help you buy your first home if all the following apply:

  • the property costs £450,000 or less
  • you buy the property at least 12 months after you open the Lifetime ISA
  • you use a conveyancer or solicitor to act for you in the purchase - the ISA provider will pay the funds directly to them
  • you’re buying with a mortgage

Buying with someone else
If the person you’re buying with has a Lifetime ISA, they can use their savings and government bonus too.

They’ll pay a 25% withdrawal charge to use their Lifetime ISA savings if they own or have a legal interest in property (for example they’re a beneficiary of a trust that includes property).

You can transfer money from a Help to Buy ISA to a Lifetime ISA. If you transfer money from a Lifetime ISA to a Help to Buy ISA you’ll have to pay the 25% withdrawal charge.

*If you have a Lifetime ISA and a Help to Buy ISA, you can only use the government bonus from one of them to buy your first home.

Pensions

The Government will increase the existing £150 income tax and national insurance relief for employer arranged pension advice to £500.

Where a serious ill-health lump sum is paid to an individual who has reached age 75, it will be taxable at that individual’s marginal rate rather than at a flat rate of 45%.

A change is to be made to align the tax treatment of a charity lump sum death benefit after a member has died under the age of 75, whether paid out of drawdown pension funds and flexi-access drawdown funds or out of funds that have not been accessed (uncrystallised funds).

Scottish Income Tax Rates 2017/18

The Scottish Parliament voted on Tuesday 21st February 2016, for the first time, to use the new income tax powers devolved to it under the Scotland Act 2016.

The new powers allow the Scottish Parliament to set as many rates and bands of income tax as it wishes.

The Scottish Government proposed to keep the income tax rates the same as the rest of the UK, but to maintain a lower threshold at which the higher rate of income tax would be paid. Because the Scottish Government is a minority one, the governing SNP was required to negotiate with other parties in the Parliament to pass its budget. The Government entered into a deal with the Green Party to do so.

Changes to higher rate income tax
The result of the deal between the SNP and the Greens is that there will be no change from the current threshold at which the higher rate of income tax is paid. From 6th April 2017, therefore, the higher rate income tax will be paid at £43,000 in Scotland, and at £45,000 in the rest of the UK.

The budget resolution passed by the Scottish Government therefore sets out the following:-

  • The Scottish basic rate of income tax is 20%, charged on income (above the personal tax allowance of £11,500) up to a Scottish basic rate limit of £31,500
  • The Scottish higher rate of income tax is 40%, charged on income above the Scottish basic rate limit and up to £150,000
  • The Scottish additional rate of income tax is 45%, charged on income above £150,001.

It should be pointed out that these tax rates apply only to “Scottish Taxpayers” as defined in legislation, and to non‑savings income; they do not apply to interest on bank accounts, nor do they apply to dividends.