The Scottish Government announced its proposed tax and spending plans for financial year 2025/26 and beyond. Small changes to income tax thresholds at the basic and intermediate rates are welcomed, but still sees Scottish taxpayers having to pay more than their counterparts in the rest of the UK.
No changes to Scottish income tax rates but changes to tax bands at lower income levels
The Scottish Government has kept Scottish rates of income tax unchanged for 2025/26 but it has slightly increased the tax bands at the lower levels. The income tax rates and bands for Scottish Taxpayers for 2025/26 are as follows.
| Band | Amount | Rate for 2025/26 (Unchanged from 2024/25 | Comparison with 2024/25 tax bands |
| Starter | £12,570 – £15,398 | 19% | Top of band increased by £522 |
| Basic | £15,398 – £27,492 | 20% | Bottom of the band increased by £522
Top of band increased by £931 |
| Intermediate | £27,492 – £43,662 | 21% | Bottom of band increased by £931 |
| Higher | £43,662 – £75,000 | 42% | Unchanged |
| Advanced | £75,000 – £125,140 | 45% | Unchanged |
| Additional | Above £125,140 | 48% | Unchanged |
The Scottish Rate of Income Tax applies to employment and self-employment income earned by people who are resident in Scotland (“Scottish Taxpayers”). It is set by the Scottish Government. However, the Westminster government sets certain tax rates for the whole of the UK, including Scotland. These Westminster-set rates include:
Only people who are resident in Scotland for income tax purposes pay Scottish rates of income tax. A person who is not tax resident in the UK will pay the main UK rates of income tax on any UK-sourced income, even if this income is earned in Scotland.
Because National Insurance is set in Westminster for the whole of the UK, the increase in the rate of Class 1 employer NICs from 13.8% to 15%, as announced by the Chancellor of the Exchequer in the Autumn Budget, will apply to employers of Scottish residents and non-Scottish residents alike.
The tax rates and bands outlined above are expected to generate approximately £1.4 billion in additional revenue for the Scottish Government in 2025/26 compared to the previous year.
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 £14,877 will be slightly better off. The increases in the tax bands at the lower levels will benefit them. The maximum benefit will be for people earning above £27,492 (the top of the Basic rate band for 2025/26), but the tax reduction is less than £15 per person over the whole tax year.
The Scottish Fiscal Commission estimates that, because of decisions on Scottish tax rates and thresholds, an additional £1.7 billion income tax will be raised in 2025/26 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 2025/25 to be £20.5 billion, so the extra tax raised by taking a different path from the rest of the UK represents about 8.2% of the Scottish government’s income tax revenue.
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Council tax: The Scottish Government announced that in 2025/26 it will increase local authority funding by more than £1 billion. However, it did not continue the council tax freeze that applied for 2024/25. Whether council taxes for residents rise in 2025/26 will depend on what councils receive and what they consider their spending needs are.
Business rates: The Basic Property Rate or “poundage” (i.e. rate at which the levy is imposed) for business rates has been frozen for 2025/26 at 49.8 pence per £1. This applies to business properties with a rateable value up to £51,000. The Intermediate Property Rate, for properties with a rateable value between £51,000 and £100,000, and the Higher Property Rate, for properties with rateable values above £100,000, are both increased in line with inflation and for 2025/26 will be 55.4p and 56.8p in the £1 respectively.
The thresholds of rateable values for the basic, intermediate and higher bands remain unchanged. This may be watched more closely next year because the next review of the rateable values of business properties is scheduled for 1 April 2026 with a tone date of 1 April 2025.
Recognising the specific challenges faced by the hospitality sector in island communities, the Scottish Government will again offer 100 per cent relief in 2025/26 for hospitality businesses located 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.
Land and Buildings Transaction Tax: There are no changes to Land and Buildings Transaction Tax (LBTT) for 2025/26. For residential properties, an Additional Dwelling Supplement (ADS) will increase from 6% to 8% with effect from 5 December 2024. This is charged in addition to normal LBTT on purchases of all relevant residential properties for £40,000 and above.
Public Health Supplement: The government announced that it has no plans to reintroduce the Public Health Supplement at this time. This was a supplementary business rate on large retailers that sold both alcohol and tobacco. It was in place between April 2012 and March 2015. Effectively, around 240 large supermarket outlets in Scotland paid the supplement, and the government had committed to exploring the idea of reintroducing it.
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Gemma Buxton
Director
Tim Sexton
Director
Jamie Greig
Senior Manager
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