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Scotland Act 2012

Section 26: Income tax for Scottish taxpayers

128.This section makes amendments relating to income tax for Scottish taxpayers.

129.Subsection (1) of the section introduces various amendments to ITA 2007.

130.Subsection (2) of the section inserts new sections 6(2A) to (2C) into ITA 2007.

131.Section 6(2) of ITA 2007 provides that the basic rate, higher rate and additional rate for a tax year (i.e. a year for which income tax is charged) are the rates determined as such by the UK Parliament for that year. Section 6(2A) provides that section 6(2) does not apply to the non-savings income of a Scottish taxpayer.

132.Section 6(2B) provides that, for the non-savings income of a Scottish taxpayer, the basic rate, higher rate and additional rate are found by:

  • Taking the rates determined under section 6(2);

  • Deducting 10 percentage points; and

  • Adding the Scottish rate (if any) set by the Scottish Parliament for that year.

133.Section 6(2C) is a signpost to the provisions of the 1998 Act, inserted by this Act, about the meaning of “Scottish taxpayer” and the setting of the Scottish rate.

134.Subsections (3) and (4) amend sections 10 and 16 of ITA 2007. Section 10 of ITA 2007 sets out how much of an individual’s income is subject to tax at the basic, higher and additional rates. Section 10 is subject to section 13 of ITA 2007 which deals with dividend income (as defined by section 19 of ITA 2007). Dividend income is charged at the dividend ordinary, dividend upper and dividend additional rates rather than at the main rates of income tax. The dividend income of Scottish taxpayers will continue to be charged at these rates.

135.Special rules also apply in relation to savings income (as defined by section 18 of ITA 2007). Broadly speaking savings income is charged at the starting rate for savings (rather than the basic rate) on so much of an individual’s income up to the starting rate limit for savings as is savings income (see section 12 of ITA 2007) and at the basic, higher or additional rate as appropriate thereafter.

136.Section 16 of ITA 2007 sets out the rules for determining the extent to which a person’s income consists of savings income or dividend income and for determining the highest part of the person’s total income.

137.Subsections (3) and (4) make consequential amendments to sections 10 and 16 to reflect the fact that the Scottish rate does not apply to savings income.

138.Subsection (5) amends section 809H of ITA 2007. Chapter A1 of Part 14 of ITA 2007 provides for an alternative basis of charge for individuals who are not domiciled in the United Kingdom or not ordinarily resident in the United Kingdom. Such an individual, if resident for income tax purposes in the United Kingdom, may make a claim for the remittance basis to apply. Under the remittance basis, income and gains only come within the charge to UK income tax and UK capital gains tax when they are brought into the United Kingdom. However, an individual who has been resident in the United Kingdom for at least seven of the previous nine tax years, and who wishes to be taxed on the remittance basis, is subject under section 809H(2) of ITA 2007 to a minimum charge to income tax and capital gains tax of £30,000. For the purposes of calculating income tax charged under section 809H(2), subsection (5) of this section disapplies new sections 6(2A) to (2C) of ITA 2007.

139.Subsection (6) amends section 989 of ITA 2007. Section 989 contains a number of definitions which apply for the purposes of income tax legislation. The definitions of basic rate, higher rate, and additional rate are defined as the rate of income tax in pursuance of section 6(2) ITA 2007. Section 6(2) only refers to the income tax calculated at the UK level. Subsection (6) adds a reference to section 6(2B) to extend the definition to the rates applicable to Scottish taxpayers.

140.Subsection (7) amends the Provisional Collection of Taxes Act 1968. That Act gives temporary statutory effect to resolutions passed by the House of Commons relating to the rate of various taxes, including income tax. This allows HMRC to collect the tax until such time as the Finance Bill containing the relevant tax provisions receives Royal Assent and becomes law or until such time as the resolutions cease to have effect. Subsection (7) amends the Act so as to include a reference to the rates as calculated in relation to Scottish taxpayers by reference to new sections 6(2A) to (2C) of ITA 2007.

141.Subsection (8) of this section is the commencement provision. The amendments will take effect from the beginning of the tax year appointed by order by HM Treasury under the power given by section 25(5).

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