Maximising Your Finances: Essential Scottish Tax Tips

02/04/2024
Magnifying glass displaying calculator with the word TAX centered

WITH the tax year end fast approaching, now is a good time to check your family finances are up to date and remain efficient. 

Despite the changes announced in Autumn Statement 2023 and Spring Budget 2024, and freezes to tax bands, the UK tax system still offers many different tax reliefs and allowances for individuals to encourage investment and other behaviours that help support the economy. Making wise use of them before the end of the tax year can help offset the impact of the ‘fiscal drag’ that we face in the next few years.

James Paterson, tax partner at BDO 


“The top rate of 47% for Scottish residents (48% from April 2024) and 39.35% for dividends applies to income above £125,140. The tax-free personal allowance of £12,570 is reduced by £1 for every £2 of net income over £100,000, meaning the effective top rate is 62% where the personal allowance is tapered away, and the personal allowance is lost in full once income exceeds £125,140.  

“By managing your net income and taking advantage of tax incentives, you can lower your tax exposure. Here are a few ideas on how to achieve this: –

  1. Review your pension contributions 

“Individuals can receive tax relief on pension contributions made in a tax year up to 100% of their relevant earnings for that year or £3,600 gross, whichever is greater (subject to the annual allowance of £60,000 with tapering for higher earners if applicable). If total pension input by you and your employer exceeds the available annual allowance, an ‘annual allowance charge’ arises – essentially the excess is subject to income tax at your marginal rate. You may also wish to confirm if you have any available annual allowance carried forward from the three prior tax years. Any unused allowance from 2020/21 will be lost if it is not used by 5 April 2024.

“Basic rate tax relief at 20% is claimed automatically by your pension provider. If you pay tax above 20%, the additional relief needs to be claimed (either by contacting HMRC or through your tax return). 

  1. Look at child benefit or tax free childcare

“For the current year Child Benefit is repaid when one partner earns over £50,000 and is fully repaid once income exceeds £60,000. In addition, working parents can claim top-up payments from the Government to pay for approved childcare for children aged up to 11 where both parents earn less than £100,000. 

“As well as the tax relief, pension contributions also reduce your taxable income for the purposes of calculating the High-Income Child Benefit Charge and for entitlement to claim tax-free childcare.

“Parents wishing to make a gift to their adult children or grandchildren may wish to consider paying into their pension as this will still obtain the normal tax reliefs for the child or grandchild as well as reducing their income for the High-Income Child Benefit Charge and for entitlement to claim tax-free childcare.”

  1. Consider tax advantaged investments 

“Each of the following investments are high-risk investments by nature. Independent financial advice is strongly recommended prior to proceeding with any such investment. 

Investments in qualifying Enterprise Investment Scheme “EIS” companies attract income tax relief at a rate of 30% on a maximum annual investment of up to £1 million for qualifying individuals. Income tax relief can also be carried back on EIS investments to the prior tax year where beneficial. 

EIS investments are exempt from capital gains tax on disposal, provided the shareholding has been held for a period in excess of three years and income tax relief was properly claimed. In addition, EIS investments enable the deferral of CGT on other investments made to aid the subscription of shares. You can only make a claim for tax relief once you have been issued with the EIS3 certificate by the company you have invested in.

Venture Capital Trust “VCT” companies attract income tax relief at a rate of 30% on a maximum investment of up to £200,000. Dividends received from VCT investments which qualify for income tax relief are exempt for income tax purposes. VCT investments obtain automatic CGT exemption regardless of how long they are held.   

Seed Enterprise Investment Scheme “SEIS” companies attract income tax relief at 50% on a maximum investment of up to £200,000 for qualifying individuals. Income tax relief can also be carried back on SEIS investments to the prior tax year where beneficial. 

SEIS investments are exempt from capital gains tax on disposal, provided the shareholding has been held for a period of more than three years and income tax relief was properly claimed. In addition, SEIS investments offer reinvestment relief which treat 50% of the CGT arising on chargeable assets as exempt when proceeds are reinvested.”

  1. Utilise your ISA allowance

“Parents wishing to make a gift to their children / grandchildren may wish to consider paying into their ISA as this will still obtain the benefits noted below for the child / grandchild (in particular the Lifetime ISA if you wish to help family onto the housing ladder). 

“The current ISA limit (cash or stock and shares) is £20,000. Interest and dividends received within an ISA structure are tax free and are also exempt from capital gains tax on disposal. 

“Savers aged 18- 40 can invest £4,000 a year into a Lifetime ISA, to which the Government will add a 25% tax-free bonus of up to a maximum of £1,000 a year. LISA funds can be used to buy a first home or are available to withdraw from 60 years old (if funds are withdrawn for other purposes the Government bonuses are lost).

“An annual allowance of £9,000 can also be invested per child into a Junior ISA.”

  1. Utilise your capital gains tax exemption

“You can realise capital gains up to the annual exemption each year tax free. The annual capital gains tax exemption is £6,000 in the current tax year, this reduces to £3,000 from 6 April 2024.”

  1. Utilise your dividend allowance 

“The personal dividend allowance provides that the first £1,000 of dividend income is tax free for all taxpayers in the current tax year, this allowance reduces to £500 from 6 April 2024.”

  1. Look at tax relief on charitable gift aid donations

“If you have a favourite charity, consider making charitable gift aid donations. Basic rate tax relief at 20% is claimed automatically by the charity. If you pay tax above 20%, the additional relief needs to be claimed within your tax return.

“Alternatively, instead of gifting cash, giving listed shares to charity generates income tax relief rather than triggering a CGT liability. However, where the shares stand at a capital loss, it may be beneficial to you to firstly dispose of the share to crystallise the loss for offset against any future capital gains you make. 

“As well as the tax relief noted above, gift aid donations also reduce your taxable income for the purposes of the High-Income Child Benefit Charge and for entitlement to claim tax-free childcare.

  1. Manage your pension income in retirement

“Most individuals with a defined contribution pension can now take their whole pension fund via 

flexi-access draw down (in one lump sum if appropriate) and this can be split between your tax-free cash entitlement and your taxable pension. 

“If you have no other income (eg you are not yet entitled to a State Pension), you can withdraw up to the amount of the personal allowance (£12,570) without triggering a tax liability so take this from a designated draw down fund – not your tax-free cash. If you want further funds in the tax year, take top-ups from your tax-free cash. This will spread the use of your tax-free cash over a number of years to save tax. 

“Finally, if you are thinking of drawing out pension funds in March, consider delaying until after 6 April – it could help keep your tax bill down for 2023/24, although be aware of the higher Scottish tax rates that apply from 6 April 2024.”

  1. Give income yielding assets to a spouse/civil partner with lower income

“Transfers between spouses and civil partners are exempt from capital gains tax and the receiving spouse or civil partner adopts the asset at the base cost of their original holder of the asset. After such a transfer, the new owner of the asset will be taxable on any income / gains generated. This can utilise tax free allowances / lower tax bands efficiently between spouses/civil partners.”

  1. Utilise annual gifting exemptions for Inheritance Tax 

“You can give away up to £3,000 worth of gifts plus £250 to as many individuals as you like in a year.”

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