Guidance on the implications of the Scotland Act 2012, allowing the Scottish government to set its own rate of income tax, has been released by HMRC.
The legislation giving Scotland fiscal autonomy from the UK for the first time in over 300 years is expected to take effect from April 2016. The Act provides powers for new taxes to be created in Scotland and for additional taxes to be devolved.
The Act also fully devolves the power to raise taxes on land transactions and on waste disposal to landfill - it is expected that this will take effect in April 2015, at which point the existing Stamp Duty Land Tax and Landfill Tax will not apply in Scotland.
Scotland's new rate of personal income tax will be charged on the non-savings income of those defined as Scottish taxpayers. The rate will be calculated by reducing the basic, higher and additional rates of income tax levied by the UK government by 10% and adding a new Scottish rate set by the Scottish parliament.
Pension income will be treated the same way as income from employment, but savings income and dividend income received by Scottish taxpayers will continue to be taxed at the appropriate UK rate. For employees and pensioners, the income tax change will be applied through PAYE.
HMRC has said it will issue tax codes to employers in the months before April 2016 which will identify those employees who are Scottish taxpayers, and employers will be required to upgrade their systems to deduct tax at the appropriate rates.
HMRC has issued some details of the proposed tests for determining Scottish tax residence. In order for an individual's situation to be considered, the individual must be UK resident for tax purposes.
In general, individuals predominantly residing in Scotland, or who have only one place of residence which is in Scotland, will be deemed to be Scottish taxpayers after the change.
Individuals who have more than one place of residence in the UK must determine which of these has been their main place of residence for the longest period in a tax year - if this is in Scotland, they are a Scottish taxpayer. Individuals who cannot identify a main place of residence will need to count the days they spend in Scotland and elsewhere in the UK to identify their main place of residence.
HMRC has said further guidance will be published prior to the introduction of the Scottish tax rate.
