Tax Code SD3 Explained

What does SD3 mean?

SD3 deducts Scottish income tax at the top rate of 48% on every pound from this source, with no personal allowance and no lower bands: HMRC's instruction for the code is to multiply the whole pay by 0.48. It applies to Scottish taxpayers whose primary income exceeds £125,140 and who have a secondary PAYE source such as a directorship or a second pension. Holyrood introduced the top rate in 2024/25 and held it at 48% for 2026/27. SD3 is the highest of the Scottish D codes; the rung below it is SD2, the advanced rate at 45%. National Insurance continues at the rUK rates.

How Scottish S-prefix tax codes work

Breakdown of the code

• S

  S

  Scottish prefix.

• D3

  D3

  Deduct at Scottish top rate - flat 48%, no allowance.

Worked example

Scottish executive on a £30,000 second salary alongside a top-rate main role on £30,000 (paid monthly).

£30,000 × 48% = £14,400/year - correct only when primary income exceeds £125,140.

Who should be on SD3?

• Scottish residents whose main home address is in Scotland
• Scottish top-rate taxpayers (primary income above £125,140) with a secondary PAYE source
• Directors with multiple board fees paid above the Scottish top-rate threshold
• High-earning pension drawdown alongside a top-rate Scottish salary

Common problems

• Confused with SD2. SD3 is the top rate (48%) and SD2 is the advanced rate (45%); querying a correct SD3 deduction as "three points too much" is the usual symptom.
• A salary cut or redundancy means your primary income no longer reaches the top-rate threshold.
• A one-off bonus inflated HMRC's estimate of your main income.

What to do if SD3 looks wrong

1. Sign in to your HMRC personal tax account at gov.uk/personal-tax-account and open the latest P2 (Notice of Coding) - it itemises every adjustment.
2. Compare the code on your most recent payslip with the code HMRC has on file; employers occasionally apply an old code if a P9 was missed.
3. Confirm your employer received your P45, or that you completed a starter checklist if you joined mid-year.
4. Check whether benefits-in-kind such as a company car, fuel, or medical insurance have changed and ask payroll to file an updated P11D.
5. Call HMRC on 0300 200 3300 (Mon-Fri, 8am-6pm) with your National Insurance number if the online tools cannot resolve it.
6. If you have overpaid, HMRC normally refunds via your next payslip once the code is corrected. For closed years request a P800 review.

If you should be on a different code…

Quick decision tree - when SD3 is the wrong fit, here is the most likely correct code.

• If you have a single PAYE job and no benefits-in-kind - you should be on 1257L.

  Standard personal allowance of £12,570 for England, Wales and NI.