Personal tax in Scotland

What is personal tax?

Personal tax is an umbrella term. It covers types of tax that individuals must pay directly (as opposed to, for example, VAT, which is paid indirectly when people purchase things like groceries). 

Some key types of personal tax that must be paid in Scotland are: 

• income tax - different in Scotland to the rest of the UK

• National Insurance - essentially the same across the UK

• capital gains tax - essentially the same across the UK

• inheritance tax - essentially the same across the UK

What is income tax?

Income tax is paid on most types of income, including: 

• income from employment and self-employment

• pensions

• income from renting out property 

• income from trusts

The amount of income tax you must pay depends on how much taxable income you receive (ie your total income across all the types of income set out above). Different rates of income tax have to be paid on different levels of earning, called ‘tax bands’. 

There is a UK-wide personal allowance which, as of 6 April 2022, is £12,570. This means that you do not have to pay any income tax on the portion of your income below this threshold. Above this threshold, you must pay gradually increasing rates of income tax which, under the Scotland Act 2016, are set specifically for Scotland. 

In Scotland, income tax is paid either by your employer on your behalf using the Pay As You Earn (PAYE) system, or by you via the Self Assessment process. HM Revenue & Customs collect the tax and pay it to the devolved Scottish Government. 

To learn more about income tax, including the rates it is paid at, when it must be paid, and how the PAYE and Self Assessment processes work, read Income tax in Scotland.

You can estimate your income tax using the Government's income tax calculator.

What is National Insurance?

National Insurance (NI) is a UK-wide tax that must be paid to qualify for the State Pension and certain benefits, including Jobseeker’s Allowance (JSA) and Employment Support Allowance (ESA). 

NI must be paid by anybody who earns over £190 per week, or who is self-employed and makes a yearly profit of more than £6,725. If you are employed, your NI contributions will be paid directly through your employer’s payroll system, using your National Insurance Number. Your employer will usually make a matching NI contribution. If you are self-employed, you will normally pay your NI contributions using the Self Assessment process. 

The amount of NI you must pay depends on which NI class you sit in, based on your employment status and your income. Some of the key NI classes, and rates you pay as of 6 April 2022, are:

• Class 1 (most employees) for earnings between £190 and £967 per week - 13.25%

• Class 1 (most employees) for earnings above £967 per week - 3.25%

• Class 2 (most self-employed people with earnings above £6,725 per year) - £3.15 per week

• Class 4 (most self-employed people with earnings above £9,881 per year) on profits between £9,881 and £50,270 per year - 10.25%

•  Class 4 (most self-employed people with earnings above £9,881 per year) on profits above £50,270 per year - 3.25%

For more detailed information about National Insurance, including more complex rules regarding the different classes, read the Government’s guidance. 

What is capital gains tax?

Capital gains tax (CGT) is a UK-wide tax paid on the profits made when an asset (eg a house or a share) is disposed of. ‘Disposing’ of an asset includes selling it, giving it away, swapping it, or receiving compensation for it (eg if it is destroyed).

For more information on CGT, including a breakdown of how to calculate how much CGT you must pay on a disposal, read Capital gains tax.

You can also use the Government’s CGT Calculator to calculate how much you need to pay. 

What is inheritance tax?

Inheritance tax (IHT) is a UK-wide tax that must be paid on estates (ie money, property and possessions) valued above a certain amount. 

IHT must be paid on any assets received as gifts in a will. You may also have to pay IHT on any gifts that you receive within the 7 years preceding the death of the person who made the gift. The amount of IHT due for gifts is calculated on a sliding scale, depending on how long before death the gift was made. 

For more information on IHT, including the current rates and rules for calculating and paying IHT, read Inheritance tax.