Scottish Income Tax
The Finance Secretary announced that there would be no additional income tax bands introduced, and they would continue with the six-band structure for 2025/26. Ms Robison also confirmed there would be no changes to the rates of income tax, meaning Scottish taxpayers will continue to face higher rates than their counterparts in the rest of the UK.
There were some positive changes, with increases announced to the basic and intermediate rate thresholds. This means that Scottish taxpayers earning less than £30,319 will pay slightly less than their counterparts south of the border, although the maximum saving is only £28.27 per year, or 54p per week.
However, the higher, advanced and top rate thresholds remain frozen. This means that Scottish taxpayers earning over £43,663 will continue to face a significant tax burden, with an effective rate of tax of 50% on income up to £50,270, due to the 42% Scottish income tax rate and the 8% National Insurance rate that applies in this range. In comparison, the effective rate on the same salary in the rest of the UK is 28%, where the income tax and National Insurance bands are aligned.
Similarly, Scottish taxpayers earning more than £100,000 will face an effective rate of 69.5% up to £125,140 due to the erosion of the personal allowance, compared to 62% for taxpayers in the rest of the UK.
Land and Buildings Transaction Tax (LBTT)
LBTT is applied to residential and non-residential land and building transactions in Scotland. The Scottish Government has decided there would be no changes to the standard LBTT rates and bands for 2025/26. However, Ms Robison announced the Additional Dwelling Supplement (ADS), which typically applies to the purchase of a second residential property valued above £40,000 in Scotland, will increase from 6% to 8%. This increase will be effective for all purchases completing on or after 5 December 2024, unless a contract has been entered into before this date.
The Scottish Government has made this increase to discourage the ownership of multiple residential properties, as part of their commitment to protecting opportunities for first-time buyers.
| Land and Buildings Transaction Tax – 2025/26 | |||||
| Residential conveyances | Non-residential conveyances | Non-residential leases | |||
| Purchase price | LBTT rate | Purchase price | LBTT rate | Net present value of rent payable | LBTT rate |
| Up to £145,000 | 0% | Up to £150,000 | 0% | Up to £150,000 | 0% |
| £145,001 to £250,000* | 2% | £150,001 to £250,000 | 1% | £150,001 to £2m | 1% |
| £250,001 to £325,000 | 5% | Over £250,000 | 5% | Over £2m | 2% |
| £325,001 to £750,000 | 10% | ||||
| Over £750,000 | 12% | ||||
* First-time buyers are entitled to LBTT relief up to £175,000.
Other announcements
- The Basic Property Rate for Non-Domestic Rates (Business Rates) will be frozen at 49.8p, with the Intermediate Property Rate and the Higher Property Rate set to rise with inflation.
- The Small Business Bonus Scheme will be protected, offering 40% relief in 2025/26 to properties in the hospitality sector, capped at £110,000 per business.
- The Standard Rate of Scottish Landfill Tax will increase to £126.15 per tonne as of 1 April 2025, with the Lower Rate increasing to £4.05 per tonne from the same date.
- The Government has pledged to deliver funding to restore a universal Winter Heating Payment to every pensioner household.
- The Government has pledged to scrap the two-child cap, which currently prevents parents from claiming universal credit or child tax credit for more than two children from 2026.
UK Budget announcements affecting Scottish taxpayers
With limited tax-raising powers, the announcements from the Scottish Government were always going to be limited. However, many of the announcements in the UK Budget on 30 October will affect Scottish taxpayers. These UK-wide announcements include:
Capital Gain Tax (CGT) and Business Asset Disposal Relief changes
- Effective from 30 October 2024, the main CGT rates have increased. The lower rate has risen from 10% to 18%, while the higher rate increased from 20% to 24%.
- The lifetime limit for Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) will remain at £1 million. These reliefs generally reduce the CGT payable on selling an unincorporated business or shares in an unquoted trading company. The tax rate applied to BADR and IR assets will increase gradually, remaining at 10% up until 5 April 2025, rising to 14% from 6 April 2025, and then to 18% in April 2026.
Business Relief (BR) and Agricultural Property Relief (APR) restricted
- Currently, assets that qualify for BR or APR can obtain full relief from Inheritance Tax (IHT) at 100%, with no upper limit. However, from April 2026, this will be restricted so that only the first £1 million of combined agricultural and business property will continue to qualify for relief at 100%, and any value in excess of this will only obtain relief at 50% (effectively reducing the main inheritance tax rate from 40% to 20%). This could have a significant impact on some businesses, particularly family businesses, with some families having to sell business assets to fund a tax bill.
In addition, the rate of BR that applies to AIM shares will be reduced from 100% to 50% from April 2026, without the £1 million full exemption. Inheritance Tax changes
- More estates will now feel the stealthy creep of IHT under the government’s plans to extend the freeze on the Nil Rate Bands and Residence Nil Rate Bands for a further two years up until 2030. Disregarding the rise, people are already experiencing an increase in the value of their homes, and other assets meaning more families will be dragged into paying tax on their wealth. The changes mean that proper estate planning is now more important than ever.
- Pensions will now form part of the estate for IHT purposes from April 2027. Initial announcements also confirm that IHT and Income Tax could be payable for death after the age of 75. This could create an effective 67% tax charge on pension death benefits. Given these changes, updates to any legacy plans must be thoroughly considered before taking action.
- From 6 April 2025, an individual’s exposure to IHT will no longer be determined by their domicile status and will instead be based on their historical residency status. The Non-Domicile regime will be removed as of April 2025, being replaced with a new residency-based system and a raft of transitional provisions.
Other considerations
- There will be a general increase in Employer National Insurance Contributions (NIC) by 1.2 percentage points from April 2025. This means it will rise from 13.8% to 15% with the Secondary Threshold on employee earnings upon which employer contributions start being paid reduced from £9,100 to £5,000.
- National Minimum Wage (NMW) rates will increase from £11.44 to £12.21 per hour from 1 April 2025 for those over the age of 21.
- The chancellor confirmed that VAT at 20% will be introduced on private school education for terms starting on or after 1 January 2025 for both education and boarding services.
What’s next?
The SNP will need support from some of the opposition to have its tax and spending plans approved which may mean we see some negotiations and compromises around the spending plans before a bill can be passed into law next year. The tax proposals in this Budget seem relatively uncontroversial so are unlikely to form the basis of any fierce debate, but several parties have suggested they would look at a complete overhaul of the Scottish income tax system if they are successful in the 2026 Holyrood elections.
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