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 (CGT) - essentially the same across the UK
inheritance tax (IHT) - essentially the same across the UK
What is income tax?
Scottish income tax is paid on most types of income, including (but not limited to):
income from employment and self-employment
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 eligible income, including those set out above). Different rates of income tax have to be paid on different levels of earning. These are called tax bands.
Most people UK-wide will have an income tax Personal Allowance which is £12,570 for the 2023/24 tax year that starts on 6 April 2023. 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 income tax at gradually increasing rates 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 (HMRC) collects the tax and pays 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 liability using the Government's income tax calculator.
What is National Insurance?
National Insurance (NI) is a UK-wide tax which must usually be paid in order for someone to qualify for the State Pension and certain other state benefits, for example, Jobseeker’s Allowance (JSA) and Employment Support Allowance (ESA).
NI should be paid by:
employees who are 16 or over and earning above £242 per week
self-employed individuals making a profit of at least £12,570 per year
What is capital gains tax?
Capital gains tax (CGT) is a UK-wide tax paid on the profits made when an asset is disposed of (eg a house or a share). 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 left by someone who has died) 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 during 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 a gift was made.
For more information on IHT, including the current rates and rules for calculating and paying IHT, read Inheritance tax.