Scotland has introduced a new set of income tax bands, but pensions experts warn that the changes could cause issues with pension tax relief calculations.
In the Scottish Budget today, the Government announced a new starter rate of 19p and then a 21p rate for those earning over £24,000. The higher rate of tax is moving from 40p to 41p and the top rate from 45p to 46p.
Currently, pension tax relief is calculated across the UK by automatically using a 20 per cent basic rate.
Aegon pensions director Steve Cameron says that “urgent clarification” is now required over pensions tax relief for Scottish taxpayers.
AJ Bell head of technical resources Gareth James says that the changes could lead to “a potentially large number of people automatically receiving too little or too much pension tax relief on their contributions.
“This could result in them facing tax charges or having to jump through additional administration hoops to deal with the consequences. It will be confusing for consumers and create additional work for financial advisers and pension providers.”
It is understood that HMR Revenue and Customs will make providers aware of members’ different tax codes in January if they are in Scotland, so that the correct basic rate relief can be claimed from 2018/19.