On 13 January 2026, the Scottish government unveiled its Budget for 2026/27, setting out measures aimed at easing the cost of living, supporting public services and driving economic growth. Here’s a closer look at the main announcements, with a focus on tax changes and other significant developments.
Income Tax
The Scottish government has the power to set income tax rates and bands for non-savings income only; this includes income from employment, property and self-employed trade profits. The personal allowance and rates and thresholds applicable for savings and dividend income are set for the UK as a whole.
Scottish taxpayers will see changes to the lower income tax bands from April 2026. The Basic and Intermediate rate thresholds will rise by 7.4%, meaning more income will be taxed at the lower rates of 19% and 20%. The Starter band will now cover taxable up to £3,967, while the Basic band will apply to taxable income of £3,968 up to £16,956.
The Higher, Advanced and Top rate thresholds are frozen until 2028/29 so the relief is targeted at low and middle earners. Following these changes ‘the majority of Scottish taxpayers should pay less Income Tax than they would elsewhere in the UK’.
The Autumn Budget in the UK announced a 2% increase in the rate of Income Tax charged on property income from April 2027. Power will be devolved to the Scottish Parliament to set a separate rate for property income in Scotland. No announcements have been made as yet as to whether a separate rate will be introduced but the first year this power could come into effect would be 2027/28.
Council Tax reform
Two new Council Tax bands will be introduced from April 2028 which will apply to properties valued over £1 million. These bands will be based on up-to-date values for those properties only; other homes will remain under the existing framework. Although fewer than 1% of households will be affected, this targeted measure ‘recognises that some multi-million-pound properties currently face bills that are not materially different from far more modest homes and ensures that the very highest value properties make a fairer contribution’.
Land and Buildings Transaction Tax
The Land and Buildings Transaction Tax rates will be maintained at current levels. The Additional Dwelling Supplement will remain at 8%. First-Time Buyer Relief will continue to be available, which has the effect of increasing the residential nil rate band from £145,000 to £175,000 for first-time buyers.
Business Rates support
Non-Domestic Rates (NDR), often referred to as ‘business rates’, have been fully devolved to the Scottish Parliament.
‘This Budget continues to support our businesses and communities with a strong NDR relief package, including maintaining the Small Business Bonus Scheme and the Business Growth Accelerator reliefs, both the most generous of their kind in the UK. It also includes a number of other reliefs, including Day Nursery and Fresh Start reliefs, which do not exist in England.’
Businesses in retail, hospitality and leisure liable for the Basic or Intermediate Property rate will benefit from a 15% rates relief in 2026/27, capped at £110,000 per business per year. Where these businesses are located on islands or in three prescribed remote areas, 100% relief will be received.
The next revaluation for the purposes of NDR is scheduled for 1 April 2026 but Transitional Relief will be introduced to protect those most affected by the revaluation.
Air Departure Tax and Private Jet Levy
From April 2027, Scotland will introduce its own Air Departure Tax (ADT), replacing the UK Air Passenger Duty (APD) on flights departing from Scottish airports, although the ADT rates will match those under APD for 2027/28. In a further step towards climate goals, a private jet supplement will follow in 2028/29.
Other announcements
- A Scottish Aggregates Tax replacing the UK Aggregates Levy will be introduced on 1 April 2026. The rate for 2026/27 will align with the UK Aggregates Levy rate.
- The Scottish Child Payment will rise in line with inflation from April 2026 to £28.20. An additional payment will be introduced from 2027/28 for children under one who are eligible for the Scottish Child Payment, bringing the total amount to £40 per week. Breakfast clubs will be provided for every primary and special school by August 2027. This underlines the government’s commitment to tackling child poverty.
- Funding for Health and Social Care will increase to a record high of almost £22.5 billion.
Keep following Mercia for up-to-date coverage of announcements affecting you and your clients. Considerations for Scottish taxpayers will be included in our Finance Act courses, and we can also provide bespoke courses focused on updates impacting Scotland.