More workers are looking to commute from England to Scotland (pic: DB Media Services)
Top earners in Scotland could save more than £46,000 in income tax over five years if they commuted to work from England.
Wealth manager Rathbones says clients and prospective clients who work in Scotland are increasingly questioning where they should live as the gap between Scottish and rest-of-UK income tax rates continues to widen.
Its research shows that someone earning £250,000 could pay around £8,900 less in income tax in the first year alone if subject to the income tax rates that apply in England rather than Scotland. Assuming salary growth of 2% a year, the cumulative difference could exceed £46,000 over five years.
The findings reflect the Scotland’s devolved income tax system. Scotland currently operates six income tax rates above the Personal Allowance, ranging from 19% to 48%, while England, Northern Ireland and Wales have three main rates of 20%, 40% and 45%.
Rathbones has joined a number of organisations that have warned of the impact of the divergent income tax regime on investment, entrepreneurs and skilled workers. ICAS yesterday warned that the divergence could affect Scotland’s competitiveness. CBI Scotland and the IoD have also made the case for harmonising tax rates.
Gordon Lawrie, head of Rathbones’ Edinburgh office, said: “For higher earners, the tax map of the UK is becoming harder to ignore.
“The difference could exceed £46,000 over five years, which is enough to make tax part of the conversation alongside housing, commuting and wider lifestyle considerations.”
For someone earning £150,000, the potential difference is around £5,900 in the first year and more than £30,500 over five years. The potential five-year income tax difference ranges from approximately £12,300 for someone earning £80,000 to more than £46,000 for someone earning £250,000.
The analysis also highlights the significant impact of the Personal Allowance taper. Between £100,000 and £125,140, taxpayers effectively face a marginal income tax rate of 60% in England. For Scottish taxpayers paying the 45% Advanced Rate, the equivalent effective marginal rate can rise to 67.5% while the Personal Allowance is being withdrawn.
Rathbones, which has offices in Glasgow and Edinburgh, argues that policymakers should place greater emphasis on Scotland’s long-term competitiveness through a simpler and more competitive tax system, in turn strengthening the country’s appeal as a place to live, work and do business.
Adam Drummond, head of Rathbones’ Glasgow office, says: “There is also a broader economic question for Scotland. If tax policy starts driving higher earners elsewhere policymakers should consider what that means for Scotland’s long-term competitiveness, its ability to retain and attract investment and entrepreneurs to drive growth.”
The Scottish government argues that financial benefits such as free university tuition and prescriptions help to mitigate any higher tax charges and that more people pay less tax than in England.
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