Scottish Dividend Tax

[StepOne]

Hi,

Another query about the impact of the changes to Scottish Income tax I'm afraid

Dividends are taxed at 7.5% for basic rate taxpayers, and 32.5% for higher rate. In Scotland, from April, the higher rate threshold is 43,430, compared to 46,350 in the rest of the UK.

If I'm in Scotland earning 45,000 as income, then I'm a higher rate taxpayer. But if any of that income is dividends, will they be taxed at 7.5%, or 32.5%?

I asked my accountant that question and he came back to say that I'm a Scottish taxpayer, therefore any dividends over 43,430 will be taxed at 32.5%. But when I queried this with him, and showed him the Scottish gov website (link below) which says "...apply to Scottish taxpayers’ non-savings, non-dividend (NSND) income for tax year 2018/19", he changed his mind and said I was right, and I could draw dividends up to 46,350 and have them taxed at the lower rate.

That's good news (assuming he is right!) , I just wanted to post on here, to see whether anyone else had considered this question, and come up with an answer,

Thanks,
StepOne

http://www.gov.scot/Topics/Government/F ... x2018-2019

[swill453]

So the implication is that for Scottish taxpayers, there are two relevant higher rate thresholds? £43,430 for NSND income, and £46,350 for, er, SD income?

I knew we were making needlessly complicated for the sake of pushing a pound or two from higher earners to lower earners, but surely that would be a step too far.

Scott.

[swill453]

Actually I think you're right. Even this year, the Scottish higher rate threshold was different to the UK one (didn't your accountant know that? ). This page https://www.litrg.org.uk/tax-guides/tax ... e-tax-work talks about the Scottish tax system for the current tax year and contains the para:

If you are a Scottish taxpayer, you may have to pay income tax according to both the Scottish rates and bands and the UK rates and bands. This may happen if you have earned income (Scottish income tax) and savings and / or dividend income (UK income tax).

Great eh?

Scott.

[scotia]

Great eh?

Nicely summarised!
And how about relief on charitable payments - the usual treatment was to increase the standard tax band by 1.25 times the charitable payment. Now Scotland has three different standard tax rates - so is it still 1.25? And this discussion suggests we also have two higher tax band starting points. Lots of fun. And lots of juicy fees for accountants, if they eventually manage to figure out how this system will operate. And if the Scottish Government are serious about collecting the multiple levels of standard rate tax, then it will require a large fraction of our population making an accurate tax return at the end of each tax year - and employing a lot more tax inspectors to work out the consequences.

[StepOne]

Good point about this years bracket. He's normally pretty good, but it was a bit disappointing that he got that wrong, although I've seen plenty of confusing discussion online about how the new Scottish bands interact with other taxes/benefits.

StepOne

[mearnsfool]

Yes I posted about the two 40% start rates in Scotland on Lemonfool last year.

It suits me as I have foreign share dividends not ISA protected and also dividends from my limited company. Therefore thanks for the higher 40% start point for dividends.

I changed my tax spreadsheet early this year to include the multiple 20% ish tax rates.

Not a great problem in the spreadsheet to put the two 40% start rates and the multiple income tax 20%ish tax rates. I have used spreadsheets since 1982 but normal mortals will have large issues here and will have to use online calculators if a Scottish one has been set up on the web.