With fewer than 4 months until the Scottish election in May 2026, Finance Secretary Shona Robison unveiled her final Budget, acknowledging that difficult decisions had to be made to balance tax and spending plans.
Prior to publication, the Scottish Labour party signalled that they are likely to abstain from the approval process to allow the Budget to pass through Parliament unhindered, frustrating the smaller parties who will have hoped to force compromises from the SNP in order to garner support for their plans.
What has been announced in the Scottish Budget 2026
Scottish income tax
It was confirmed that no additional income tax bands would be introduced for 2026/27, with the Scottish Government maintaining the existing six-band structure. Rates of Scottish Income Tax will remain unchanged, meaning Scottish taxpayers will continue to generally face higher marginal rates than those elsewhere in the UK.
Ms Robison announced an increase in Basic and Intermediate rate thresholds, with both increasing by 7.4% which is well above inflation, offering modest relief for lower and middle earners.
By contrast, the Higher (42%), Advanced (45%) and Top (48%) rate thresholds remain frozen at their current levels until at least 2028/29 continuing the trend of fiscal drag for those earning more than £43,662.
These changes mean that Scottish taxpayers earning up to £33,494 will pay less tax than their counterparts elsewhere in the UK, rising from £30,318 in 2025/26 to reflect the uplift in the lower bands. The maximum annual saving will be £39.67 in 2026/27 (around 76p per week), up from £28 in 2025/26
Anyone earning above £33,494 will pay more income tax in Scotland than in the rest of the UK. The gap widens significantly at higher incomes: someone earning £50,000 will pay £1,495 more, while at £100,000, the additional liability rises to approximately £3,300. At £200,000, the gap reaches £7,430.
The freeze on the higher thresholds also creates sharp marginal rate cliffs for Scottish taxpayers, in particular:
Those earning above £43,663 will continue to face an effective tax rate of 50% on income up to £50,270. This arises from the 42% Scottish income tax rate combined with 8% National Insurance. In the rest of the UK, the equivalent effective rate is 28% due to aligned tax and NI thresholds.
Those earning over £100,000 will face an effective marginal rate of 69.5% on income up to £125,140 due to the tapering of the personal allowance. The equivalent rate in the rest of the UK is 62%.
Scottish vs Rest‑of‑UK Income Tax Bands – 2026/27
Band
Scottish Taxable Income
Scottish Rate
Rest of UK Taxable Income
Rest of UK Rate
Personal Allowance
Up to £12,570
0%
Up to £12,570
0%
Starter / Basic
£12,571 – £16,537
19%
£12,571 – £50,270
20%
Basic
£16,538 – £29,526
20%
-
-
Intermediate
£29,527 – £43,662
21%
-
-
Higher
£43,663 – £75,000
42%
£50,271 – £125,140
40%
Advanced
£75,001 – £125,140
45%
-
-
Top
Above £125,140
48%
Above £125,140
45%
Scottish “Mansion Tax”
Whilst no changes were announced to LBTT, the Finance Secretary announced there will be new Council Tax surcharge rates, similar to the UK’s Mansion Tax announced in the last UK Budget. We learned these new supplementary rates will apply to residential properties valued over £1 million in Scotland from April 2028, increasing the overall liability for higher‑value homes as part of wider local taxation reform. However, the actual rates applicable were not detailed.
Business Rates
Ms Robison also announced a 15% business rates relief for retail, hospitality, and leisure sectors, providing £138 million in savings over three years, as in addition to a broader £184 million relief package across domestic business rates. Additionally, the Small Business Bonus Scheme will be extended for another three years, continuing the waiver of rates for around 100,000 small enterprises.
Levy on Private Jets
From April 2027, the Air Departure Tax (ADT) will come into force in place of the UK air passenger duty, and there will be a consultation on a new Highlands and Islands Exemption in relation to a continuing exemption on domestic flights. Through this new framework, a private jet tax supplement will be introduced, reflecting a significant step in targeting luxury emissions and ensuring those aircraft generating the highest carbon emissions per head contribute their fair share. The levy is designed to generate additional revenue while supporting Scotland’s climate goals and reinforcing the principle that those with the greatest environmental impact should pay proportionately.
UK Budget 2025 announcements affecting Scottish Taxpayers
Dividend, Property & Savings Income Tax increases
Dividend tax rates will increase by 2% from April 2026, with property and savings income tax up by 2% from April 2027.
Impact in Scotland: Scottish taxpayers with investment income will see higher bills on top on dividened and interest income. Property income is subject to Scottish income tax and would need further legislation to be introduced to replicate the proposals from the UK Budget. The UK Government has committed to devolving power to set a separate rate for property income in Scotland, as part of the UK’s annual Finance Act. Subject to legislative consent from the Scottish Parliament, the first year this power could come into effect would be 2027/28.Sacrifice cap
From April 2029, contributions above £2,000 will lose the National Insurance Contribution (NIC) exemption.
Impact in Scotland: Higher NIC costs for employees and employers.
ISA changes
Cash ISA allowance cut to £12,000 from April 2027 for under-65s.
Impact in Scotland: Savers may need to shift to stocks & shares ISAs or other investments, increasing exposure to market risk.
Inheritance Tax (IHT) threshold freeze
Nil Rate Band and Residence Nil Rate Bands are frozen until 2031.
Impact in Scotland: Rising property values mean more estates will fall into the scope of IHT.
Capital Gains Tax changes
Relief for disposals to Employee Ownership Trusts will be cut to 50% while CGT rates on Business Asset Disposal Relief rise to 18% from April 2026.
Impact in Scotland: Business owners selling or setting up EOTs face higher tax bills, affecting succession planning for Scottish SMEs.
National Living Wage (NLW) increase
From April 2026, NLW rises to £12.71/hour for 21+.
Impact in Scotland: Employers face higher wage costs alongside frozen NIC thresholds, squeezing margins in hospitality and retail sectors.
Scottish Budget FAQs
Why does Scotland have its own Budget?
Scotland has its own Budget because it has its own Parliament with devolved powers. This means the Scottish Government can decide how to allocate funding in areas under its control, such as health, education, transport, and certain taxes.
What is a devolved power?
A devolved power is a policy area that the UK Parliament has transferred to the Scottish Parliament. In these areas, Scotland can make its own laws and spending decisions.
Why does Scotland have devolved powers?
Devolved powers were created as part of the 1999 devolution settlement, giving Scotland its own Parliament and greater control over domestic affairs.
What areas are devolved to Scotland?
Scotland oversees a broad range of public services and policy areas, including Health and the NHS, Education and schools, Transport, Policing, Environment and Agriculture, Local Government, some social security benefits, and specific taxes.
Which taxes are devolved in Scotland?
Scotland has control over Income Tax on earnings, Land and Buildings Transaction Tax, Landfill Tax.
What areas are still controlled by the UK Parliament
Known as reserved powers, the UK Government controls Defence, Foreign Policy, Immigration, most major taxes (e.g., VAT, National Insurance, Corporation Tax, Capital Gains Tax, Inheritance Tax), Energy and Broadcasting.
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Key Contact
Sean Cockburn
Partner - Private Client Tax
-
Edinburgh
