UK spends £51m mitigating higher Scottish tax for personnel

The Ministry of Defence has revealed that its Scottish Income Tax Mitigation scheme is projected to cost the public purse £12.74 million in the 2024–25 financial year, bringing the total cost since its inception to nearly £51.5 million.

In a written answer to Scott Arthur MP (Labour, Edinburgh South West), Minister for Veterans Alistair Carns explained that the policy exists to ensure that Service personnel assigned to Scotland are not financially disadvantaged by higher income tax rates compared to those posted elsewhere in the UK.

“The Ministry of Defence’s Scottish income tax mitigation payment scheme is unique within the public sector and has been agreed by wider Government for use only where Service personnel are compelled to serve at one location over another,” Carns said.

“The scheme aims to support retention of those serving in Scotland by removing the disadvantage of higher taxes applying on those required to serve there who might not choose to do so if not compelled.”

The scheme began compensating affected personnel from the 2018–19 tax year, with the MOD providing backdated figures from the 2019–20 financial year onwards. Annual estimated costs rose steadily each year:

• £4.69 million in 2019–20
• £7.36 million in 2020–21
• £8.11 million in 2021–22
• £8.27 million in 2022–23
• £9.31 million in 2023–24
• £12.74 million in 2024–25

The policy remains the only such mitigation of its kind in the UK public sector, highlighting the MOD’s specific retention concerns related to devolved tax policy.