Scottish Budget 2025-26

The Scottish Budget had few tax announcements, being focused primarily on spending. However, the two most significant announcements were on income tax and Land and Buildings Transaction Tax (LBTT).

Income tax changes

On income tax, the thresholds at which point the Scottish basic rate and intermediate rate apply will increase by 3.5%. Of more consequence, the Scottish government announced that there will be no increases in the Scottish rate of tax for the remainder of this parliament. The next election is due in May 2026, which suggests the government will not increase the rates in the 2025 Budget.

For someone earning at least £27,492 this will save a little under £15 a year. Overall rates for higher earners remain significantly higher than in England and Wales, while lower and average earners have a slight tax saving.

Land and Buildings Transaction Tax (LBTT)

The additional dwelling supplement, aimed at purchasers of second homes and corporate buyers, will increase from a flat rate of 6% to a flat rate of 8%.

The LBTT on a second home costing £250,000 would therefore increase from £17,100 to £22,100. The comparable rate for additional dwellings in England and Wales is 5%. The SDLT on an English property worth £250,000 would be £12,500, increasing to £15,000 from 1 April 2025.

More widely, a number of consultations have been announced for LBTT, covering Co-ownership Authorised Contractual Schemes (CoACS), Property Investment Funds (PAIFS), and certain demergers which do not currently qualify for relief review of LBTT. These are due in early 2025, along with a wider review considering both residential and non-residential elements of the tax in Spring 2025.

Otherwise, business rates relief will be provided for the hospitality sector, with up to 40% relief available, which includes certain music venues with a capacity of up to 1,500 people. The 100% relief for hospitality venues for island communities will continue. Altogether, the Scottish government expects this will benefit up to 13,000 properties.

You can read the full Scottish Budget here.

If you have any questions on these announcements, please get in touch with Elaine McInroy.

References:
Scottish Budget 2025 to 2026: Scottish tax ready reckoners – gov.scot
Scottish Income Tax 2025 to 2026: factsheet – gov.scot
Stamp Duty Land Tax: Residential property rates – GOV.UK