We provide three types of pension scheme when using our tax calculators. For any contribution amount or percentage entered across our tools you can select either a Salary Sacrifice, Employers Scheme or Private Pension for the pension.
Before tax devolution powers were fully utilised (pre-April 2018) tax relief was calculated at the highest marginal tax rate. For Employers' Scheme contributions this meant the tax bill was reduced by the amount of the contribution so you receive the tax relief directly on the payslip. This continues to be the case for Scotland. The same is mirrored for Salary Sacrifice pension schemes - this scheme type has the pension contribution made by the employer in return for a cut in salary, thus saving both employer and employee national insurance deductions.
The difference between Scotland and rUK (Rest of the UK) will be on private pension contributions. Normally you make a pension contribution and automatically receive a basic rate (20 percent) top-up by the government. This is claimed by the pension provider.
The basic rate of tax in Scotland is now 19 percent, and the next rate up is 21 percent. The government will continue to provide 20 percent relief to the pension provider even if the taxpayer only pays 19 percent tax as the highest rate of tax. There will be no future claim from the government for the difference so Scottish taxpayers keep the extra percentage. For those paying higher rates of tax they can make a claim as usual on their tax returns to receive the difference between the 20 percent already provided and the tax they paid - this will either be via a refund or a reduction in the calculated tax bill.
You can test how this affects you on our calculators. A Scottish taxpayer earning £50,000 gross pays £9,184 in tax. If the same taxpayer makes a £1,000 pension contribution (NET) the tax bill is reduced to £8,921. This is due to a £262 claim for tax relief on the £9,184. The taxpayer receives £250 relief at the basic rate. In total the pension contribution becomes £1,250 and they save £262 in tax.
In rUK, a taxpayer earning £50,000 pays £8,360 in tax (£824 less than Scotland). If they make a £1,000 pension contribution (NET), they receive relief of £250 (Basic) and the tax bill is reduced to £8,110. In total the pension contribution becomes £1,250 and they save £250 in tax. Total tax paid is £8,110 on a £1,250 gross pension contribution. In Scotland the total tax paid is £8,921 on a £1,250 gross pension contribution. Scottish tax rules result in £824 more tax paid without the pension contribution or £811 with the pension contribution.