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Help with pension tax relief for Scottish members

Help with pension tax relief for Scottish members

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If you live in Scotland you will be a Scottish taxpayer and pay Scottish Income Tax (your tax code should start with an ‘S’ to reflect this).

In most cases it should be obvious whether you are a Scottish taxpayer or not but HMRC has some guidance for situations that might be more complicated.

On 20 February the Scottish Parliament set the following bands and rates for Scottish Income Tax in 2018/19:

Earnings band

Band name


£11,850 to £13,850

Starter rate


£13,850 to £24,000

Basic rate


£24,000 to £43,430

Intermediate rate


£43,430 to £150,000

Higher rate


Above £150,000

Top rate


The additional bands and different rates have implications for how tax relief on pension contributions will operate in some circumstances.

Prospect’s briefing note on pension tax relief has been updated to reflect these changes:

In summary the impact will depend on the method of tax relief operated by your pension scheme.

If your pension scheme operates a ‘net pay’ arrangement then tax relief will continue to be given by default at your marginal rate of tax, including the new and newly increased Scottish rates. Most public sector pension schemes operate ‘net pay’ arrangements.

If your pension scheme operates ‘relief at source’ then they will continue to claim tax relief at 20% for members who are Scottish taxpayers. The good news is that, for now, HMRC will not seek to recover the difference for Scottish taxpayers paying at the starter rate of 19%. Higher rate and top rate taxpayers will be used to claiming the additional tax relief over 20% through self-assessment and this process will not change for them. However many intermediate rate taxpayers will not have had to do this before and it is important that they contact HMRC to claim their additional tax relief.

So the changes for Scottish taxpayers mean that:

  • It is important to find out if your pension scheme operates tax relief through ‘relief at source’.
  • If yes, it is important to claim the difference between 20% and your marginal rate of tax relief from HMRC. This is particularly important for intermediate rate payers who will not be used to claiming some of their tax relief this way.
Neil Walsh

Neil Walsh


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