On 13 January 2026, the Scottish Government announced its proposed tax and spending plans for financial year 2026/27 and beyond. The budget is primarily focused on welfare and public services, with small tax changes intended to ease the income tax burden on lower earners and increase the contribution made by the wealthiest.
Summary of key announcements
Small income tax changes
The Scottish Government has elected to make some minor alterations to the lowest tax bands, increasing the amount of income required to pay tax at the basic and intermediate tax rates. The income tax rates and bands for 2026/27 are as follows:
| Band | Amount | Rate for 2026/27 | Comparison with 2025/26 |
| Starter | £12,571 – £16,537 | 19% | Top of band increased by £1,140 |
| Basic | £16,538 – £29,526 | 20% | Bottom of band increased by £1,140
Top of band increased by £2,035 |
| Intermediate | £29,527 – £43,662 | 21% | Bottom of band increased by £2,035 |
| Higher | £43,663 – £75,000 | 42% | Unchanged |
| Advanced | £75,001 – £125,140 | 45% | Unchanged |
| Additional | Above £125,140 | 48% | Unchanged |
Only people who are resident in Scotland for income tax purposes pay Scottish rates of income tax on their employed or self-employed income.
Taxes on other sources of income, such as savings, dividends and capital gains, as well as rates of National Insurance continue to be set by the Westminster Government, and therefore the Scottish Government can only do so much to affect its own tax policy.
The Scottish Fiscal Commission estimates that an additional £1.8 billion income tax will be raised in 2026/27 than would be the case if tax rates and thresholds from the rest of the UK were applied in Scotland. The Commission forecasts Scottish income tax revenue for 2026/27 to be £21.5 so the extra tax raised by taking a different path from the rest of the UK represents about 8.4% of the Scottish Government’s income tax revenue.
Effect of the new tax bands on taxpayers
If earning the same amount of employment or self-employment income as last year, all Scottish taxpayers earning above £15,398 will be slightly better off in 2026/27. The impact is limited to a maximum of around £32 per person, per annum with a smaller saving for those earnings less than £29,526 per annum.
Scottish taxpayers earning less than per annum will be better off compared to the rest of the UK, with those on higher incomes paying more in income tax. The Scottish Government estimates that around 55% of Scots will pay less in income tax than if they were living elsewhere in the UK.
However, because the personal allowance and other rate bands remain unchanged for another year, the Scottish Government continues to seek to generate additional revenue from fiscal drag. As earnings increase (gross median weekly earnings for full time employees in Scotland increased by 4.6% in 2025) more individuals will move into the higher rates of income tax. This is not a new policy – indeed it is one that the Westminster Government is also utilising – but does mean that pay rises do not have the same impact for families already struggling to meet the increasing cost of living.
Overall, Scotland continues to have the highest rates of income tax in the UK, and for middle and higher earners the impact is significant, with those earning between £43,662 and £50,270 paying a marginal rate of 50%, some 22 percentage points higher than the rest of the UK. The continuing disparity between Scotland and the UK exacerbates the challenges employers face in attracting and retaining talent.
Other measures
“Mansion Tax”: Similar to recent announcements by the Westminster Government for England, the Scottish Government is introducing a so-called Mansion Tax. This measure will see councils introduce two new Council Tax bands for properties valued at over £1 million, effective from 1 April 2028. Band I will apply to properties valued between £1 million and £2 million, whilst Band J will apply to properties valued above £2 million.
At this time there is little information about how property values will be determined, but the Scottish Government has indicated that up-to-date values will be used for those properties, whilst all other homes will remain on the existing Council Tax valuation framework.
Air Departure Tax (ADT): The Air Departure Tax (Scotland) Act was passed in 2017 but to date has not been implemented due to Scottish Government concerns regarding the Highlands and Islands exemption for the UK-wide Air Passenger Duty (APD) complying with the UK Government’s Subsidy Control Regime. It is understood that a solution has been reached and, from 1 April 2027, APD will no longer apply to passengers from Scottish airports and instead the ADT will come into effect.
As part of this budget, the Scottish Government has announced that ADT rates and bands for 2027/28 will be aligned with APD so the airline industry has some certainty about what to expect when the changeover happens.
The headline announcement with regard to ADT is the introduction of Private Jet Supplement from 2028/29, resulting in a higher rate of tax to be paid by those travelling by private jet. The rate has not yet been announced.
Business rates: The Basic Property Rate or “poundage” (i.e. rate at which the levy is imposed) for business rates have decreased compared to 2025/26, and for 2026/27 will be set at 48.1 pence per £1 (down from 49.8 pence). This applies to business properties with a rateable value up to and including £51,000. The Intermediate Property Rate, for properties with a rateable value between £51,001 and £100,000, and the Higher Property Rate, for properties with rateable values above £100,000, have also decreased for 2026/27 and will be 53.5p and 54.8p in the £1 respectively.
The thresholds of rateable values for the basic, intermediate and higher bands remain unchanged for another year.
Whilst a reduction in rates is welcomed, the next revaluation of rateable values is scheduled for 1 April 2026 with a “tone date” (benchmarking point) of 1 April 2026. This revaluation exercise may see rateable values increase on some properties, and therefore some businesses may see their business rates rise if their property moves into a new band.
Similar to last year, and in recognition of the specific challenges faced in island communities, the 100% rate relief for properties in the retail, hospitality and leisure sectors will continue on islands as defined by the Islands (Scotland) Act 2018, and in three prescribed remote areas (Cape Wrath, Knoydart and Scoraig), capped at £110,000 per business per year.
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Gemma Buxton
Partner
Jamie Greig
Senior Manager
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