Douglas Russell

The starter rate threshold has increased by £521 to £15,397, while the basic rate threshold has moved from £26,561 to £27,491. These are inflationary adjustments which will result in individuals saving a maximum of £14.51 per annum.

While the Scottish Government is limited to setting tax bands and rates of income tax, there were no changes announced for 2025/2026, with thresholds for Scotland’s four other tax bands frozen until April 2026. Accountants, business and financial advisers, Armstrong Watson, say there is a continued divergence between the amount of tax paid by those living on different sides of the border and that this is becoming an increasing concern for employers operating close to the border.

In Scotland there has been no adjustment to the higher rate threshold for a fifth year running. Those living north of the border pay higher rate tax of 42% at £43,662 compared to 40% at £50,000 in the rest of the UK. 

Douglas Russell, accounting and business services partner at Armstrong Watson, said: “For anyone living in Scotland who earns more than £27,492, as wages increase more and more people will find themselves paying a greater amount of income tax as they are dragged into higher tax bands.

“While the Autumn Budget also made no changes to the rate of income tax, and the thresholds remain frozen until 2028, for all but the lowest earners in Scotland, there remains divergence of the tax burden of higher-earning Scots compared to equivalent colleagues in the rest of the UK.”

Last year the Scottish Government also introduced a new 45% advanced rate of income tax for those earning between £75,001-£125,140. As a result, high earners in Scotland now pay up to 5% more than those earning the same amount elsewhere in the UK.

Mr Russell explains that the disparities between the Scottish and UK tax systems may impact on growth and entrepreneurial businesses trying to attract skilled employees to work in Scotland.

Mr Russel continued: “The high taxes levied in Scotland will act as a blocker to a skilled individual looking at similar new opportunities in Glasgow or Newcastle. Depending on salary levels, the difference in Net pay could run into several thousand per annum depending on which side of the Border they relocate to. 

“The ever-widening gap between the Scottish and English tax systems is also becoming an increasing concern for employers operating close to the Border. Employees taking home significantly less pay than their colleagues they work with each day, solely because of which side of the Border the employee lives on, is causing real HR issues for many employers.”

It is important to note that these announcements are a draft budget and will be finalised in early 2025.