Income Tax: Tax Treatment of Social Security Benefits
Published 29 October 2018
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Who is likely to be affected
Individuals who are entitled to the specified social security benefits covered by this measure.
General description of the measure
This measure confirms the tax treatment of 4 existing and 5 new social security benefits.
Policy objective
The objective of this measure is to confirm the tax treatment of these 9 social security benefits.
Background to the measure
Social security benefits are administered by a number of different UK government departments and the devolved administrations.
The tax treatment of social security benefits is legislated for in Income Tax legislation. The tax treatment of new benefits should be confirmed when each one is introduced.
The Scottish government’s fiscal framework underpins the powers over tax and welfare that are devolved to Scotland through the Scotland Act.
This states that “any new benefits or discretionary payments introduced by the Scottish Government will not be deemed to be income for tax purposes, unless topping up a benefit which is deemed taxable such as Carer’s Allowance”.
The Scottish government is introducing 5 social security payments:
- Young Carer Grant
- Best Start Grant
- Funeral Expense Assistance
- Discretionary Housing Payments
- Carer’s Allowance Supplement
The government is also confirming the tax treatment of another 4 social security benefits. These are the:
- Council Tax Reduction Scheme, Discretionary Housing Payments and the Flexible Support Fund, overseen by the UK Government
- Discretionary Support Scheme, overseen by the Northern Ireland Executive
Operative date
This measure will have effect on and after the date of Royal Assent to Finance Bill 2018-19.
Current law
The Income Tax treatment of social security benefits is legislated for in part 10 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003.
Section 660 of ITEPA 2003 details the taxable UK benefits in Table A.
Section 677 of ITEPA 2003 details the UK social security benefits wholly exempt from Income Tax in Table B.
Proposed revisions
Legislation will be introduced in Finance Bill 2018-19 to amend ITEPA 2003 to clarify the Income Tax treatment of 9 social security benefits.
The tax treatment of these benefits will be legislated for as follows:
- Young Carer Grant, Best Start Grant, Funeral Expense Assistance and Discretionary Housing Payments, payable under the Social Security (Scotland) Act 2018, will be legislated for as tax exempt.
- Carer’s Allowance Supplement payable under the Social Security (Scotland) Act 2018 will be legislated to confirm the payments are taxable
- Discretionary Support Scheme payable under the Discretionary Support Regulations (Northern Ireland) 2016, will be legislated for as tax exempt
- Council Tax Reduction Scheme payable under the Local Government Finance Act 1992 will be legislated for as tax exempt
- Discretionary Housing Payments payable under the Child Support, Pensions and Social Security Act 2000 will be legislated for as tax exempt
- Flexible Support Fund payable under the Employment and Training Act 1973 will be legislated for as tax exempt
Summary of impacts
Exchequer impact (£m)
| 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 |
|---|---|---|---|---|---|
| negligible | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure affects individuals entitled to the 9 social security benefits outlined by confirming their tax treatment as being taxable or tax exempt. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure affects those individuals receiving the specified social security benefits. It does not discriminate on those with protected characteristics. The policy applies equally to those affected by its provisions and in receipt of the relevant benefits.
Carer’s Allowance Supplement will be confirmed as taxable. It is a supplementary payment to Carers Allowance, which is a taxable benefit paid by the UK government.
The majority of recipients of Carer’s Allowance are women and so more women than men will receive the Carer’s Allowance Supplement in Scotland.
The vast majority of those who will receive Carer’s Allowance Supplement are expected to have low incomes and will not pay Income Tax on the payments.
Impact on business including civil society organisations
This measure has no impact on businesses as it only affects individuals who are entitled to the 9 social security benefits outlined. There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
There will be no significant operational impact.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, email the Income Tax Structure and Earnings Team at [email protected].