About 1.5 million people in Scotland earning more than £28,850 already pay more income tax than they would in the rest of the UK. However, in yesterday’s budget, the government proposed plans that aim to ease the tax burden for lower earners.
By raising the thresholds for the basic and intermediate tax bands, the government hopes to shelter more people from “tax hikes" where pay increases push them into higher tax brackets, even if the tax bands don’t change.
On the other hand, higher earners face frozen thresholds, potentially adding to their tax burden. Here are some of the income tax announcements and what they could mean for you and your finances.
This article isn’t personal advice. If you’re not sure what’s right for you, ask for financial advice. Pension, ISA, and tax rules can change, and benefits depend on your circumstances. We aren’t tax experts so if you need help with complex taxation, speak to an accountant.
See Jamie's full adviser profile for more information, including the range of advice he offers.
What are the main announcements?
No new bands or increases in income tax rates for the remainder of this government’s parliament.
Basic and intermediate rate thresholds will increase by 3.5% for the 2025/26 tax year.
Higher, Advanced and Top rate thresholds will be frozen at current levels to the end of this government’s parliament.
What are the proposed changes to income tax bands?
The less you earn, the less income tax you’ll pay.
Tax bands | Tax rates | Income 2024/25 | Income 2025/26 |
|---|---|---|---|
Personal allowance | 0% | Up to £12,570 | No change |
Starter rate | 19% | £12,571- £14,876 | £12,571-£15,397 |
Basic rate | 20% | £14,877 - £26,561 | £15,398 - £27,491 |
Intermediate rate | 21% | £26,562 - £43,662 | £27,492 - £43,662 |
Higher rate | 42% | £43,663 - £75,000 | No change |
Advanced rate | 45% | £75,001 - £125,140 | No change |
Top rate | 48% | Above £125,140 | No change |
The table sets out the position for individuals with a standard personal allowance (£12,570). Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000
3 tips to pay less income tax
If you want to lower your tax bill, especially if you're a higher earner, here are three tips to help you save.
Consider adding money to your pension
Putting money in your pension could considerably reduce the amount of tax you pay. You can potentially lower your income tax liability by paying into a workplace or personal pension (like a Self-Invested Personal Pension).
When you pay into your pension, some of the money that would’ve gone to the government as tax goes towards your pension instead. This is known as pension tax relief.
Any money in a pension is also free from UK income and capital gains tax. When you take money out (allowed from age 55, rising to 57 in 2028), you can usually take up to 25% as tax free cash. The remainder is taxed as income.
How much can I pay into a pension and how much tax relief will I get?
If you’re a UK resident under 75, you’ll automatically get 20% basic-rate tax relief added to anything you pay into your personal pension. Even if you don’t pay tax, or pay tax below the basic rate, you’ll be entitled to tax relief of 20%.
Each tax year you can usually pay in as much as you earn, up to £60,000, across all your pensions and get tax relief. If you earn £3,600 or less (including non-earners) you can still pay in up to £3,600, including tax relief.
If you’re a higher, advanced, or top-rate taxpayer, the tax benefits are even more appealing. Scottish taxpayers can currently claim back up to a further 28% in tax relief through your tax return.
If you’ve already taken money from your pension, or you’re a high earner, you might have a lower annual allowance.
To find out how much tax relief you could get, try our tax relief calculator. All you need to do is confirm how much you earn a year and how much you’d like to pay into your pension. You’ll need to select that you pay income tax in Scotland too, if that’s the case.
Use your ISA allowance
Individual Savings Accounts (ISAs) also offer a tax-efficient way to save and invest for the future.
You can pay in up to £20,000 each tax year. If your investments grow, you won’t have to pay capital gains tax. And you won’t pay UK income tax on any income either. All investments fall as well as rise in value, so you could get back less than you invest.
There’s no tax to pay on ISA withdrawals. However, if you take money out, you might not be able to pay it back into an ISA without using more of your ISA allowance.
Transfer investments to your spouse or civil partner
If your spouse pays less tax than you, or no tax at all, then they could be missing out on using valuable allowances each year. This includes the personal allowance, personal savings allowance, dividend allowance and capital gains tax allowance. You can gift investments to your spouse free of capital gains tax.
If you think you could benefit from getting expert financial advice from a professional, start by booking a call with our advisory team today.
You won't get personal advice on the call, but they'll talk you through the advice service we offer, including charges and connect you with an adviser if you'd like to go ahead.
Our advisers can recommend how you can make the most of your tax allowances through financial planning. But if you need complex tax calculations, your adviser might recommend you speak to an accountant to complement their advice.