How can wealthy Scots save £46,000 on income tax? Commute from England
Higher earners in Scotland could save more than £46,000 in income tax over five years by moving south of the border and commuting to work, according to a new analysis by Rathbones.
The wealth management firm found that a resident earning £250,000 could pay £8,900 less income tax in the first year alone by relocating from Scotland to England, while continuing to commute to their job north of the border. Assuming annual salary growth of two per cent, that gap could widen to more than £46,000 over five years.
The top rate of income tax in Scotland is 48 per cent, compared with 45 per cent in England, Northern Ireland and Wales.
Gordon Lawrie, head of Rathbones‘ Edinburgh office, said: “For higher earners, the tax map of the UK is becoming harder to ignore. A worker can live on one side of the border, work on the other and, depending on their tax residence, face a materially different income-tax bill.”
Rathbones also highlighted the impact of the Personal Allowance taper, under which earnings between £100,000 and £125,140 face a marginal income tax rate of 60 per cent in England, rising to 67.5 per cent in Scotland.
The firm has called on Scottish policymakers to focus on the nation’s long-term competitiveness through a simpler tax system, making it more appealing as a place to live, work and do business.
Adam Drummond, head of Rathbones’ Glasgow office, warned that higher earners moving away could damage Scotland’s competitiveness and “its ability to retain and attract investment and entrepreneurs to drive growth.”
Scotland has gradually raised its top rate of income tax over the past eight years, above the UK-wide threshold of 45 per cent on earnings over £125,140.
However, analysis by tax lawyer Dan Neidle suggests this could leave the government collecting around £22m less in 2024-25. Neidle believes this might be a “conservative estimate” that could rise to £30m.
Neidle said Scotland “may have fallen over the Laffer curve”, an economic theory that states there is a limit to how far taxes can rise before receipts start to fall, as higher rates discourage growth or push the wealthiest taxpayers to leave.