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9 min read 31 Mar 23
Welsh income tax is only payable by Welsh taxpayers.
There are a number of tests to determine Welsh taxpayer status. Place of residence is key to establishing whether an individual is a Welsh taxpayer. For the vast majority of individuals, the question of whether or not they are a Welsh taxpayer will be a simple one – they will either live in Wales and be a Welsh taxpayer or live elsewhere in the UK and not be a Welsh taxpayer.
Welsh income tax applies to non-savings, non-dividend income only (earnings, pension and most other taxable income). Welsh taxpayers pay the same tax as the rest of the UK on savings and dividends income.
The powers the Welsh government have over tax broadly fall into two categories:
The Wales Act 2014 allowed stamp duty land tax and landfill tax to be fully devolved to the Welsh government. The Tax Collection and Management (Wales) Act 2016 provided the Welsh government with the powers to collect and manage fully-devolved Welsh taxes. The Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act (LTTA) and Landfill Disposals Tax (Wales) Act were passed by the National Assembly in the summer of 2017. The Welsh Revenue Authority (WRA) was also established in 2017 and began to collect these taxes from April 2018.
Income tax was partially devolved to the Welsh government by the Wales Act 2014 and the Wales Act 2017. These Acts enabled the Welsh National Assembly to set tax rates on non-savings and non-dividend income for those defined as Welsh taxpayers. HMRC continue to be responsible for the collection and management of Welsh income tax, and as such it is not a fully devolved tax and remains part of the existing UK income tax system.
The Wales Act 2014 and the Wales Act 2017 gave the Welsh Government the power to set the rate of income tax applicable to non-savings, non-divided income only. This comprises earnings, pensions, taxable social security payments, trading profits and income from property.
Following an order made on 24 July 2018, the National Assembly of Wales is able to set the rates of income tax for the tax years 2019/20 onwards.
From 6 April 2019, tax codes start with a ‘C’ for Welsh taxpayers. In addition, the self-assessment tax return will be adapted so that Welsh taxpayers can inform HMRC that the Welsh rate applies.
The rate paid by Welsh taxpayers is calculated by reducing the UK basic, higher and additional rates of income tax by 10 percentage points, then adding the individual rates set annually by the National Assembly of Wales.
The power to vary the Welsh rate of income tax by band has been devolved so the rates set could differ for basic, higher and additional.
The rates for a tax year are therefore calculated as follows:
Take the UK basic rate, higher rate or additional rate.
Deduct 10 percentage points.
Respectively add the Welsh basic rate, Welsh higher rate and Welsh additional rate (as the case may be) set by the National Assembly for Wales for that year.
When the Welsh Government set the Welsh rates of income tax at 10p, this means the rates of income tax paid by Welsh taxpayers continue to be the same as those paid by English and Northern Irish taxpayers.
|UK Rates||Reduced UK Rates||Welsh Rates||Rate Applicable|
|20%||Basic Rate||10% (-10)||10%||20%|
|40%||Higher Rate||30% (-10)||10%||40%|
|45%||Additional Rate||35% (-10)||10%||45%|
Only the power to set the rates applicable for Non-Savings, Non Dividend Income has been devolved. The thresholds for the tax bands also remain set by the UK Government and are in line with the rest of the UK.
An individual can only be a Welsh taxpayer if they are resident in the UK for tax purposes. The legislation defines a Welsh taxpayer as an individual who:
If an individual does not live in and has no connection to Wales, they will not be a Welsh taxpayer. For an individual who lives in Wales for the full tax year, it is clear cut, they will be a Welsh taxpayer.
The situation will be different if the individual:
In any of these scenarios, the close connection to (main home) or number of days spent in Wales will determine the tax status.
If an individual moves to or from Wales in the course of a tax year they will be a Welsh taxpayer if they live in Wales for at least as much of the tax year as they live in any other country in the UK. The number of days spent in Wales is compared to days spent in England, Scotland or Northern Ireland individually during the course of that year – not in aggregate.
Alice rented and lived at a house in Birmingham for a number of years. On 30 June her rental on the Birmingham property ends and she immediately moves to a flat in Pontypridd. The time she spent living in Wales in the tax year (1 July to 5 April) was longer than the time she lived in England (6 April to 30 June) so she is a Welsh taxpayer for the whole tax year.
Bryn lived in Barry for many years. In the course of the tax year he sold his house in Barry and moved into a flat in Manchester where he stayed before moving to a new house in Bristol. During the tax year he spent:
125 days in Barry
120 days in Manchester
120 days in Bristol
Bryn is not a Welsh taxpayer for the whole of the tax year because he lived in Wales for less time than he lived in England (Wales 125 days, England 240 days).
Emily has owned and lived at a house in Swansea for a number of years – this is her sole place of residence. In the course of the year she sells her house in Swansea and moves into rented accommodation in Glasgow where she stays until moving into a new house she has purchased in London. The period of time each location constituted her place of residence in the course of the tax year was as follows:
125 days in Swansea
120 days in London
120 days in Glasgow
Emily is a Welsh taxpayer, for the whole of the tax year, on the basis that the period of time for which her place of residence was in Wales was at least as great (and in this case greater) than the periods of time her place of residence was in any one of the other parts of the UK.
If HMRC changes an individual’s tax rate, the new rate will be backdated to the start of the tax year in which the move occurred. The tax taken from the individual’s salary or pension will be adjusted automatically so that the individual pays the right amount across the whole year.
Where an individual regards more than one place as home, one in Wales and one elsewhere in the UK, they would count their ‘main home’ as the place they have the closest connection in terms of family, social and functional links.
This does not necessarily have to be the home where the individual spends most of their time. The main home may be where:
For example, if an individual lives in a home in England during the week to avoid a commute to work, but their family lives in the Welsh home and they return to the family home at the weekend. If, in addition to this, they are a member of local clubs or groups and they are registered with the local dentist or doctor, Welsh taxpayer status would apply even though they technically spend more time in England.
This scenario could arise if an individual would not regard a place they have stayed for regular periods as home, or if they live in various places and it is not possible to identify any one as the main home.
In this instance, the number of days spent in Wales during the tax year would be counted and compared to the number of days spent elsewhere in the UK. If the number of days spent in Wales is more than each other place in the UK, then the individual is a Welsh taxpayer for the whole tax year.
Charlotte works for a consultancy firm and travels round the UK on short term assignments, staying in hotels. She neither owns nor rents her own property. In the course of the tax year she spent:
150 days in Wales
100 days in England
90 days in Scotland
25 days in Northern Ireland
Charlotte has nowhere that could be regarded as home during the course of the tax year so the days she spent in Wales are compared against the days she spent elsewhere in the UK. As the 150 days spent in Wales is more than any of the days spent in the individual parts of the UK, she is a Welsh taxpayer.
The number of days is determined by where the individual was at midnight at the end of the day.
If Dennis lived in Wales from 10am on Monday to 5pm on Friday the same week, he spent 4 days there.
Someone who works offshore has spent a day in Wales if they are up to 12 nautical miles from Wales.
Where an individual is travelling between one non-UK country to another non-UK country and happen to be in the UK at midnight, it will not count as a day, unless they don’t leave the UK the next day or carry out activities not connected with travel, such as a work meeting or visiting friends.
Reliefs and allowances, such as Personal Allowance and Personal Savings ‘Allowance’ remain a UK 'reserved' matter.
Capital Gains Tax (CGT) has not been devolved (nor the upper earnings threshold for NIC, IHT or Corporation Tax).
The Welsh Government only has power to set the basic, higher and additional rates, the limits for the tax bands are still set by the UK Government and are in line with the rest of the UK.
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