In previous blogs in this series we have discussed the potential for complicating the tax affairs of individuals who live and work in the border counties of England and Scotland.
In the past week, two very interesting matters have been publicised regarding the impact of SRIT – the Scottish rate of income tax.
Firstly, the Scottish parliament are considering higher rates of income tax (as compared with the rest of the UK) when SRIT commences April 2016.
Secondly, HMRC have issued a technical note: Technical guidance on Scottish taxpayer status. The introduction to the note begins:
“The Scottish rate of income tax (SRIT), as introduced by the Scotland Act 2012, will be charged on the non-savings and non-dividend income of those defined as Scottish taxpayers and will start from April 2016. “
So far so good. Now for the interesting part:
“The definition of a Scottish taxpayer is focused on where an individual lives, or resides, in the course of a tax year.”
Deeper into the text HMRC confirms that taxpayers will only be liable to SRIT if they reside in Scotland, not if they live outside Scotland and work inside Scotland.
This being the case professional advisors north and south of the border will need to rethink income tax planning for clients who live one side of the border and work the other. For example, a high income earner who presently lives in Scotland, and works in Scotland or England, may be advised to relocate their home base to England, thus avoiding the suggested higher rates set for SRIT.
And what about payroll? Software will have to be adapted so it applies SRIT or UK income tax rates depending on a person’s residence for SRIT purposes. Or will businesses have to run two payrolls?
For practitioners who may be affected the technical note can be downloaded at:
The knock-on effects of these purely income tax changes could be far reaching. Are we likely to see a sudden influx of Scottish tax exiles keen to find a family home in the north of England? Will we see property prices in Carlisle and Berwick-on-Tweed heading north?
When the government proclaims that it intends to simplify UK taxation, and perhaps we have taken a couple of steps in the recent past in this direction, by devolving income tax to the Scottish Parliament we may have taken three steps back.