We know small business.
January 10th 2024

Worried about the new tax rates in Scotland? Here’s how to mitigate them

The Scottish Government's recent budget announcements have introduced a bunch of new tax rates and thresholds that will significantly impact taxpayers across multiple income groups.

You now have a grand total of six tax bands to be aware of when filing tax returns or managing your employees’ payroll.

As Ivan, one of Scholes’ Directors, said: “If there was an international league table for ‘most Income Tax bands’, Scotland would surely come out on top!”

The changes necessitate a no-nonsense approach to your tax mitigation going forward and, perhaps, a review of your current financial strategies.

What the new rates entail

The new Income Tax rates and thresholds in Scotland place an additional burden on higher earners while offering a slight relief to those on the lower end of the earnings scale.

The Deputy First Minister introduced an Advanced rate of 45 per cent for those earning between £75,000 and just over £125,000 taking the number of Scottish tax rate bands to six – and giving Scottish accountants a bit of a headache!

Here’s what the Income Tax bands will look like for the year 2024/25.

  • Starter rate (£12,571 - £14,876) = 19 per cent
  • Scottish basic rate (£14,877 - £26,561) = 20 per cent
  • Intermediate rate (£26,562 - £43,662) = 21 per cent
  • Higher rate (£43,663 - £75,000) = 42 per cent
  • Advanced rate (£75,001 - £125,140) = 45 per cent
  • Top rate (over £125,140) = 48 per cent

So, if you are making above £125,140, you’ll find yourself paying significantly more tax than the rest of the UK.

This disparity underscores the need for a savvy approach to managing one's tax liabilities.

Our recommendations to our clients

Firstly, let me say that the easiest way to reduce your tax liabilities is to discuss the issue with your accountant. Trust me, we can help!

Having said that, there are a few legitimate ways you could go about reducing your Income Tax obligations.

  • Allowances and reliefs: Personal allowances, savings allowances, and other reliefs can significantly reduce your tax burden if utilised correctly. You should speak to your accountant to find out which ones you are entitled to.
  • Split your income through marriage allowances: This is a strategy often overlooked but highly effective. By transferring a portion of your income to your spouse, who may be taxed at a lower rate, you can reduce your overall tax liability. This method is particularly beneficial for couples where one partner has a significantly higher income than the other.
  • Pension contributions: Contributions to your pension can reduce your taxable income, thereby lowering your tax bill. Pensions offer tax-free growth on your investments, making them a highly efficient tool for long-term financial planning.
  • Invest in tax-efficient vehicles: Individual Savings Accounts (ISAs) and other tax-efficient ways to manage your money are another strategy to consider. With ISAs, you can enjoy tax-free growth on your investments and withdrawals.
  • Utilise your dividends: Utilising your dividends allowance effectively can also help in reducing your tax liability. However, with the dividend allowance set to reduce from £1,000 to £500 in April, planning around this change is crucial.
  • Give to charity: This isn’t just a noble gesture, it’s also a smart tax strategy. Donations to registered charities can be tax-deductible, reducing your taxable income.

Going forward…

I have been talking to a lot of our clients about these new tax rate changes and there seems to be some apprehension as to what the future holds.

There’s also a lot of confusion surrounding tax mitigation strategies – hence this article to help demystify them a little bit.

Having said that, I am not suggesting you implement tax mitigation strategies without the help of a qualified and experienced tax adviser. Getting it wrong could look more like tax avoidance than tax mitigation.

My advice: speak directly to your accountant and do it quick. They may be able to save you from a big Income Tax bill at the end of the next tax year.

Feel free to email me with any questions you may have on enquiries@scholesca.co.uk or call one of our offices.


Let's talk

Book your free consultation now:

Preferred Method of Contact